Is work-in-progress typically part of asking price?
October 11, 2021
by a searcher from Ohio State University in United States
Have an LOI I’m working through with sellers. I created a working capital peg and the sellers want to fulfill this with work-in-progress (orders paid in full once completed).
is this typical? How have you worked through this in the LOI acceptance process?
from Ohio State University in United States
Mike, thank you! I will reach out via DM to work through identifying WC peg. Thanks for clarification that inventory consists of raw, WIP, and FG. I wasn't entirely clear whether WIP should be included or not at first. But, now, I believe it should otherwise how would I operate the business without a huge gap in revenues. As an example, if no WIP was included by the sellers, and I assumed ownership, it would take it roughly###-###-#### days for me to intake orders, manufacture, install, and receive payment.
Sam, the work in progress are customer orders that will likely be finalized, manufactured, installed, and paid. The business does not collect any payment prior to installation; historically delinquent payments are not a problem. Further, they do not begin manufacturing until there is an installation date specified by the customer. This is a natural mechanism in their manufacturing flow that prevents incurring costs if a customer is not committed to product delivery (not great protection, but it works).
from The University of Chicago in Chicago, IL, USA
If some amount is pre-paid, WC peg gets complicated. One has to look into many operational and accounting aspects.
Establishing a peg is challenging for custom manufacturing where each order is material and of different value, and raw material is ordered for each job, etc.. My guess is yours is like that.. I just advised a searcher through such situation.
Happy to talk. Please, DM me. (Like "Jaago".)