How to structure deposits collected by owner with new owner completing work

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by a searcher
in Tampa, FL, USA

3yrs ago

How to structure deposits collected by owner with new owner completing work

Hello everyone! I am looking for any insight on how to structure a piece of the contract we are currently writing up. We are not sure how to handle sales/deposits for those sales under existing ownership that will be completed under our new ownership. This is for HVAC installations. Any insight would be appreciated!

Thanks

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reply by a professional 3yrs ago
from Villanova University in West Chester, PA, USA

^redacted‌ - the appropriate legal structure will follow the business determinations by the parties. ^redacted‌ provided two great options, and another is a proration as ^redacted‌ mentioned. It will depend on the number of contracts being transferred and the complexity of determining the value that should be apportioned to each party. You could have a portion of the final collections be paid to the Seller once the job is complete and A/R are received. Ultimately, you can structure it in whatever way makes sense for the parties and an attorney can reflect that in your transaction documents. I'd be happy to discuss this further.

reply by a searcher 3yrs ago
in Tyler, TX, USA

^redacted‌ I've had to work through with a couple different sellers on proprietary deals and it's not the easiest concept for those unfamiliar with deferred revenue liabilities.

My suggestion if possible:
1. Explain "earned" vs. "unearned" revenue and proper revenue and COGS recognition to seller (i.e., if you do the install, you should get the revenues AND be responsible for the associated costs).
2. If possible, go PO by PO and tally up (a) all deposits for work not yet completed and (b) all expenses paid for work not yet completed [my guess is this is components or HVAC systems]. Then take the difference of the two.
3. Structure the difference as either a purchase price reduction or have the seller leave cash on the B/S equal to that difference.

Happy to discuss further if helpful.