Some buyers begin the offer process by submitting an LOI, or Letter of Intent (to purhase). An LOI is a preliminary draft of the price, terms, and conditions that will later be included in a purchase agreement. Both buyer and seller should fully understand the terms and implications of the LOI before signing. The buyer may show proof of funds at this point demonstrating that they are capable of executing the deal structure submitted in thet LOI.
This stage typically makes or breaks a deal.
The benefit of an LOI is that the buyer can begin the due diligence stage of reviewing relevant business information before fully committing to moving forward with a purchase agreement. It’s not unusual to see a clause releasing the buyer from the LOI for any reason. If the formal review meets the buyer’s expectation, the deal progresses to a mutually binding purchase agreement and moves toward closing. The due diligence period may also yield details to support the buyer’s business plan that they plan to execute post-acquisition, and these discoveries can be beneficial to securing a loan for the business.
Other aspects of the LOI may include requests of the seller.
The LOI gives both buyer and seller the opportunity to negotiate the final details of the deal with both parties demonstrating they are committed to moving forward. This is an opportunity for a broker to be sure their client’s best interests are protected and that the requirements of the LOI are doable.
Both the LOI and the purchase agreement will spell out timetables and deilverables that must be met prior to closing and a tentative closing date is set. After signing, a broker works with buyer and seller on the deliverables and also starts to work out a transition plan for after the closing. This is also a time to for the accountant and attorney to begin their part of the closing process.
Your broker’s assistance will help this vital part of the transaction go as smoothly as possible.