Any advice on how to deal with WIP/NWC at close?

searcher profile

June 18, 2025

by a searcher from The University of Texas at Austin - Red McCombs School of Business in New York, NY, USA

Has anyone ever closed on a construction / project based business and has any advice on how to deal with WIP/NWC at close? I have a situation where the broker believes all NWC should be provided by the buyer (in addition to purchase price of the business). This could be accomplished through more equity, LOC, or additional (delayed draw) loan on the SBA. I think this makes sense for making payroll, having money for advertising, and other normal expense. However, I look at the WIP differently since WIP represents a functioning business. Other common NWC items like AR, prepaids, and AP don't necessarily indicate a functioning business, only promises to perform from one party to another. WIP represents contracted sales / jobs that are actually being performed, about to be performed, or about to finish. I don't think it makes sense to enter into a business on day 1 with the potential that there is no WIP, no sales pipeline, and nothing holding the seller or his team honest to make sure all that is functioning. Just curious whether anyone has dealt with this before, especially for a smaller business where there aren't that many employees, most of the labor is subcontracted, and the seller has historically been very involved in generating leads and closing sales. I feel like common mitigating factor might be a largely forgivable seller note that is based on minimum level of business in the first ~12 months, but would love to hear from the community how people have mitigated this risk in the past.
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commentor profile
Reply by an investor
from Duke University in Nashville, TN, USA
Great question ,and one that comes up more often than people admit in project-based businesses. We’ve seen this play out across several acquisitions where revenue is tightly tied to WIP timing, and frankly, treating WIP like it’s just another line in NWC often ignores the operational fragility underneath.
One way we’ve seen it mitigated (and structured ourselves) is tying WIP validation to a clawback or partial forgiveness on a seller note — but only after mapping it against historical WIP conversion rates and close velocity. In the capital markets, that kind of nuance can make or break lender confidence.
Curious what others here have seen work. Always enjoy seeing this level of deal level thinking
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Reply by a searcher
from The University of Chicago in Nashville, TN, USA
I'm a couple weeks out from closing (fingers crossed) on a similar business and we have WIP and NWC that we have been working through. Feel free to reach out. I had made the need for NWC very clear in the LOI and with the broker but didn't have all of the information to give a dollar value so we had to negotiate a lot of this after the fact. We ended up with a price reduction, or money "left" in the business depending on how you look at it, and a holdback that will be adjusted for NWC.
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