A pattern I keep seeing in contractor, custom manufacturing and event businesses: the seller collects deposits up front, the cash sits in the bank, and on a cash-basis P&L it already looks like revenue.
Then the buyer closes and has to do the work. The cash went to the seller at closing, the labor and materials come out of the buyer's pocket afterward.
A few things worth checking before the LOI turns into a purchase agreement:- How much is sitting in deposits or prepaid jobs today, and how that number moves month to month- Whether the "record year" is partly jobs that were paid for but not yet delivered- Whether the deposit balance is treated as a liability in the working capital peg, or as cash the seller sweeps
If it's large, it's usually handled as a credit to the buyer at closing or folded into the peg. Either way, it's much easier to agree on before the lender and the lawyers are involved.
Has anyone here been caught out by a deposit balance after closing, and how did you end up handling it?