We are a project-based company and our cash flow is lumpy. How do we clean up our progress billing and work-in-progress accounting during our two-year exit runway so a buyer cannot claw back our valuation with a massive working capital adjustment at close?

Question

Tyler Smith · Accepted Answer

When institutional buyers assess a project-based business, one of their primary targets during due diligence is net working capital. If your accounting systems rely on aggressive milestone billing or cash-basis progress tracking, a sophisticated buyer will argue that you have over-billed relative to the actual work performed. They will use this mismatch to demand a significant downward adjustment to the purchase price at the closing table.

To prevent this, you must transition your financial reporting to strict percentage-of-completion revenue recognition at least twenty-four months before you go to market. This requires your finance seat on the Accountability Chart to tie every invoice directly to verifiable project milestones and actual labor hours run.

- Implement a weekly reconciliation process that matches engineering or production hours against project progress.
- Clearly segregate under-billings, which are your assets, from over-billings, which are your liabilities, on your balance sheet.
- Work with your M&A advisor to establish a clear definition of normalized working capital early in the process.

By cleaning up these numbers on your runway, you show the buyer a highly predictable cash flow cycle and eliminate their ability to use working capital calculations as a weapon to discount your hard-earned valuation.