Modify Your LOI to Get the Deal Done
If you submit an LOI, that is a very good step in the direction.
You want the LOI to be well written, free of any errors, and .
You would be surprised at some LOI’s we get. The wrong business name is on it, there are spelling errors or fundamental errors like commas in the wrong places of a purchase price, or the valuation is not matching the structure of the deal meaning that the upfront cash and earn-out don’t equate to what the LOI is saying the purchase price is. These seem like comical scenarios but it happens way more often than you think.
Please review your LOI before submitting.
Now, an LOI should be reflective of what you are willing to purchase the business for.
The LOI should resemble what the terms of the deal are going to be unless there is some huge surprise. Minor issues should be expected during due diligence. There will be little things that come up that seem unfavorable to the business but there will be just as many small favorable things in the deal too if you look for them. It’s not about the minor issues. It is the major ones that surprise you that can change the structure of the deal where the seller was not forthcoming about a material term in the prospectus. Material can mean something burdensome like debt they expect you to take over, or a material misunderstanding when it comes to how much time the business requires. Even if it is material, it doesn’t se can often be fixed with price or terms in the agreement.
If you get some pushback from a client or seller about your LOI, look to see what needs to be changed.
Even before submitting your first LOI, you want to analyze it if it is going to be accepted.
That’s the goal of your LOI – to be accepted, sounds obvious, but some buyers throw an LOI out and just hope even though it’s not satisfactory based on every conversation prior to.
If conversations happened where it was mentioned that the seller won’t accept less than $15m and you come in there with $11m, odds are you should expect pushback and you might just upset the seller to where they won’t counter. Remember, parties can be emotional.
No one is suggesting you overpay in the deal, but if $15m guaranteed is more than you think it’s worth, get the seller to $15m through a revenue based milestone or stretch it out or several years, or go even above their threshold such as $17m if milestones are achieved. Don’t just come in with $11m and try to convince them it is worth less. Commentary with an LOI about valuation does not always work.
The LOI should represent a good faith promise to get a deal done that you will follow through on that you can be excited about. You want the seller to be equally excited about the deal and opportunity as well.
If you would like to hop on a call with us to go over things related to acquisitions and general business overview, please schedule a time here. We do a one hour deep dive where we go over your needs as it relates to acquisitions & business expansion, and then we go on the hunt for you to line up a business that fits.
If you want to work together on a deal, we would love to see what you are working on and see how we can help you . Reach out to us.
Phone – (800) 773-1523
Email – acquisitions@Jarbly.com
- buying a business LOI
- buying a business offer
- how to submit an offer properly
- how to write an loi
- letter of intent
- loi submission
- will my loi be accpeted
- writing a good loi
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