A contracting company can look profitable on paper and still hand you a mess the day after closing. Why? Because unfinished jobs hide the truth better than almost anything else on the balance sheet.
Good Georgia contractor due diligence means looking past last year’s tax return and into the jobs that are open right now. If you are sizing up a business for sale listing or comparing several businesses for sale, work in progress is where the story gets tested. Performing a deep dive into these active files is the most critical activity during your due diligence period. By verifying the health of these projects early, you protect your earnest money before it becomes non-refundable and you are locked into the transaction.
Key Takeaways
- Prioritize the Work in Progress (WIP) Review: Financial statements look backward, but a contractor’s true value is often hidden in active, unfinished jobs that define future cash flow.
- Demand Source Documentation: Move beyond summary spreadsheets to audit original contracts, job cost reports, change order logs, and lien waivers to verify that work is truly profitable and collectible.
- Assess Projects Through Three Lenses: Evaluate every active job for its profitability (margin stability), collectibility (receivables and retainage health), and finishability (permits, capacity, and contractual risks).
- Leverage Findings for Deal Structure: Use discovered risks to negotiate price adjustments, seller notes, or escrows, and ensure that any associated commercial real estate is audited with the same level of scrutiny as the business operations.
Why open jobs tell you more than old financials
Think of financial statements as the rearview mirror. They are helpful, but a buyer needs to look through the windshield as well.
In construction, today’s profit often lives inside jobs that are not finished yet. Revenue may be booked based on the percentage of completion. Materials may be ordered but not installed. Change orders may be discussed but never signed. Retainage may sit out there for months. A clean profit and loss statement does not settle any of those details.
That is why a thorough WIP review matters so much. You are asking a simple question: are these open projects going to turn into cash, or are they going to consume cash?
A seller may show strong margins from a commercial remodel in Atlanta or a residential service division in Savannah. That is fine, but when you pull the WIP schedule and see three jobs with fading gross profit, delayed billing, and disputed extras, the picture changes fast.
For buyers, this is where discipline beats excitement. If you want a broader framework for due diligence when buying a business, start there, then go deeper on the job-level review. This analysis should be clearly defined in your purchase agreement, which acts as the governing document allowing you to perform this necessary deep dive. You must utilize your due diligence period effectively to complete this assessment, as these time constraints are critical for evaluating the company accurately.
If your investigation reveals significant discrepancies or unexpected losses, you must provide written notice to the seller to address these findings before moving forward. The main thing to remember is this: unfinished work is not an asset just because it appears on a report. It has to be profitable, collectible, and finishable. If one of those pieces breaks, the deal value drops with it.
Ask for the full job file, not a summary
You don’t want a polished recap. You want the paper trail.
A real WIP review starts with source documents, not only a spreadsheet exported from the accounting system. If the seller can explain every major job and back it up with reports, that’s a good sign. If you get vague answers, late uploads, or shifting numbers, pay attention.
At minimum, ask for these items on every meaningful open contract:
- A current WIP schedule with contract value, costs to date, percent complete, billed to date, and estimated cost to finish
- Job cost reports by labor, material, subcontractors, and equipment
- Open contract lists and signed agreements
- Change order logs, with clear notes on what is approved and what is still floating
- Accounts receivable aging and retainage schedules
- Accounts payable aging, including unpaid subs and suppliers
- Lien waivers, insurance certificates, and permit or license records tied to active work
When reviewing your payables, confirm you have received all signed lien waivers to mitigate risk during the acquisition. You must verify that no entities have active lien rights that could cloud the project title. Pay close attention to any Materialman’s Lien filings, and make sure you thoroughly audit the Notice to Contractor logs to ensure no hidden claims are lurking in the background of a project.
If you need a quick refresher on how these reports are supposed to work, Deltek’s guide to construction WIP is a useful primer. It’s also smart to compare the seller’s reporting habits against best practices for WIP schedules, because sloppy reconciliation usually shows up long before closing.
If the seller can’t show how percent complete was calculated, don’t pay for the projected margin.
Ask one more thing, and ask it early: who updates the WIP report? If the answer is “the owner keeps it in his head,” you’ve found risk. A lot of it.
Review each active project three ways
Once you have the files, do not review them job by job in a random way. Use the same lens every time. It keeps you from missing the obvious.
This quick framework helps:
| Test | What to compare | What it tells you |
|---|---|---|
| Profitability | Costs to date, revised budget, estimated cost to finish | Whether margin is real or slipping |
| Collectibility | Billings, A/R aging, retainage, signed change orders | Whether earned revenue becomes cash |
| Finishability | Schedule, permits, crew capacity, subs, disputes | Whether the job can close without surprises |
The table is simple. The work behind it is not.
Profitability
Start with the seller’s budget, then challenge it. Compare original estimated gross profit to the current forecast. If labor is running hot, materials jumped, or subcontractor pricing changed, the remaining margin may already be gone.
Margin fade is one of the clearest warnings in contractor acquisitions. A project that looked like a 22 percent gross margin job six months ago may now be a 9 percent job, or a loss. That does not always kill the deal, but it should change the price or the terms.
Look hard at estimated cost to finish. That is where optimism loves to hide. On a Pooler warehouse build-out, for example, the drywall may be hung and the invoices may look current, but punch work, supervision, and change order disputes can still chew up the last bit of profit.
Collectibility
A job is not healthy because it is billed. It is healthy when the money is likely to come in.
Review underbillings and overbillings. Underbilling can mean the company is leaving cash on the table. Overbilling can create a later problem if the work or documentation does not support what has already been invoiced. Neither issue is fatal on its own, but both tell you something about management quality.
Then check receivables aging. Old invoices are often a story about something else, such as a customer dispute, missing paperwork, incomplete work, or a change order that was never approved in writing. Retainage deserves its own review too. Aged retainage sometimes looks collectible until you find out the project has closeout issues or warranty claims.
A Savannah contractor may have work in Pooler one month and Hilton Head the next. Geography changes, but cash rules do not. Identifying these financial risks is vital before the expiration of your due diligence period to protect your earnest money.
Finishability
Can the company finish what it has started without a cash call, a legal fight, or a desperate scramble for labor? That is the question.
Read the actual contract on larger jobs. Then look for gaps between the contract terms and the accounting. Are there liquidated damages? Notice requirements for changes? Customer sign-off rules? Pay-if-paid language with subs? These items do not show up neatly in a WIP summary, but they can decide whether a job ends with profit or pain.
Check permits, licensing, insurance, and subcontractor status. If key subs are unpaid, lien exposure follows. If permits are lagging, schedule slippage follows. If the project manager is juggling too many jobs, cost-to-complete numbers can be fantasy.
This applies whether the company is in Savannah, Pooler, Atlanta, Fulton County, Macon, Warner Robins, Brunswick, Dublin, or Waycross. Different markets, same math.
Let WIP shape the deal, and don’t ignore the real estate
Once the review is done, do not shrug off the red flags and hope operations will fix them later. Put the findings into the deal.
If you uncover weak jobs, aging retainage, undocumented change orders, or unpaid suppliers, the answer is not always to walk away. Sometimes the right move is to change the structure. A holdback tied to job closeout, a working-capital adjustment, a seller note, or a targeted escrow can protect you better than a price cut alone.
That is especially true when the seller says profit is coming next month on open jobs. Maybe it is, and maybe it is not. Buyers get in trouble when they pay today for earnings that still need perfect execution tomorrow. A good WIP review does not only tell you what the business earned; it tells you what risk you are inheriting.
There is another layer many buyers miss, which is the property side. For contractors, the shop, yard, warehouse, or office often matters almost as much as the backlog. Think of this process like a home inspection for a residential purchase, but significantly more complex. You are performing a commercial home inspection of sorts, where the purchase contract should specify a due diligence fee paid to the seller to secure your window for investigation.
The company may be the business for sale, while the fenced lot or warehouse is marketed separately as commercial real estate for sale. In other deals, the operating company is available but the building stays with the seller under a CRE for lease setup, or a longer commercial real estate for lease agreement that needs landlord approval before transfer.
If the property is part of the transaction, treat the CRE like its own file. You must conduct a thorough title search, schedule a termite inspection, and verify local zoning ordinances. If the facility is located in an industrial park, you should also review the HOA documents to ensure your equipment storage rights are protected. Throughout this process, your deal may rely on a financing contingency and an appraisal contingency to protect your capital.
An Atlanta contractor with a strong backlog can still become a bad buy if the yard lease expires in nine months and the landlord will not consent to assignment. The reverse is true too, as a fair business with excellent real estate can support the deal. Because of these complexities, a qualified closing attorney should oversee the transfer of both the business and the property to ensure all legal hurdles are cleared.
When you are sorting through listings and trying to compare companies, B3’s buying an existing business guide can help you frame the broader acquisition process. Still, for contractors, the open jobs and the property need their own close review. That is where surprises like to live.
Frequently Asked Questions
Why is the WIP schedule more important than the balance sheet when buying a contractor?
While the balance sheet shows historical assets and liabilities, the WIP schedule reveals the current operational health and future profitability of ongoing projects. In contracting, a company can appear profitable on paper while hiding significant losses within projects that are over-budget or difficult to collect on.
What are the most common red flags to look for during a job file review?
Watch for vague answers from owners, shifting numbers between reports, or a lack of supporting documentation for percentage-of-completion calculations. Additionally, look for margin fade, where the estimated cost to finish a project increases over time, and unresolved change orders that lack written approval.
How can I protect my earnest money if the due diligence results are poor?
The purchase agreement must clearly define your due diligence period and the requirements for reviewing active jobs. If your investigation reveals discrepancies, you must provide formal written notice to the seller before the due diligence window expires to address these findings and protect your deposit.
Should I review the commercial real estate separately from the contracting business?
Yes, if the business is tied to a specific warehouse or yard, the property should be treated as its own due diligence file. You must verify lease terms, landlord consent for assignment, zoning ordinances, and property condition to ensure the company has a stable physical location to operate from after the closing.
Final thoughts
When you buy a contracting company, you are not only buying what it did, but you are also buying what it still has to finish.
That is why work in progress deserves a hard look before you sign anything. If the seller can prove margins, support billings, collect retainage, and finish jobs cleanly, the deal becomes much stronger. If not, the purchase price should be adjusted or the terms revised.
The due diligence period is your primary window of opportunity to verify these details. Ultimately, taking the time to confirm the health of active projects is exactly what separates a successful closing from the potential loss of earnest money on a failing business. The smartest buyers do not simply fall in love with the backlog; they verify it.
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