Dealing with work in process or work in progress, also known as WIP, in a business acquisition is sometimes an afterthought which can lead to misunderstandings as closing approaches or even after closing. An easy item to deal with is whether WIP is included in the assets being purchased, which it usually is. Questions about how to deal with WIP relate to the amount of work performed before versus after closing and whether customer payments have been made on the WIP before closing. For example, suppose the seller has ordered materials for a job and been invoiced prior to closing but the customer will not be invoiced until all of the work is completed post-closing. Responsibility for the payment of the material invoices should be addressed. If customers made down payments on jobs for which a substantial part of the work remains to be performed after closing, then there should be discussions about whether those down payments are transferred to the purchaser. The purchase agreement should also make clear that the seller is responsible for any defects in work performed before closing. Addressing all of these WIP issues prior to closing helps to avoid misunderstandings and/or regrets post-closing.
ABOUT GLENN D. SOLOMON
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Glenn D. Solomon is a principal at Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years. He has extensive experience in the purchase and sale of businesses, structuring ownership agreements, and advising companies in financial distress.
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