Our project-based company carries substantial unbilled Work-in-Progress and deferred billing milestones at month-end. How do we structure the purchase agreement so unbilled WIP is compensated as an asset rather than absorbed into standard working capital?

Question

Tyler Smith · Accepted Answer

In project-driven businesses, buyers often try to capture unbilled Work-in-Progress as a routine current asset inside the baseline Net Working Capital peg while categorizing customer prepayments as debt-like deductions. This creates an unbalanced transaction where the buyer inherits your completed work without paying for the operational payroll and overhead you spent out of pre-closing cash.

You must explicitly define Work-in-Progress and unbilled revenue within the purchase agreement definitions. First, require that all earned but unbilled direct costs and recognized margins up to the closing date are treated as realized assets. Ensure the working capital peg methodology mirrors percentage-of-completion accounting rather than raw cash invoicing cycles, preventing your unbilled effort from being treated as free inventory.

Second, institute a specific post-closing WIP realization adjustment. When the buyer invoices clients and collects cash on projects that were partially completed under your ownership, the percentage of cash attributable to pre-closing progress must be paid to you dollar-for-dollar through the final post-closing true-up.

Track open project completion percentages weekly inside your Level 10 Meeting using your EOS Scorecard. Having detailed, third-party auditable time and materials records tied to project accounting ensures the buyer cannot claim unbilled balances were uncollectible or outside normal operating boundaries.