What happens after LOI?

If this is your first time buying or selling a small business you might not know what an LOI is -- it stands for Letter of Intent and is a document that we use to help a small business buyer make a non binding offer to a seller of a business that specifies their intent to purchase the business after certain contingencies and due diligence items are met.

If you've been following me for a while, you  may know that there are about 30 different steps that must be successfully executed on the path to a successful business sale.

If or when any of those steps fails, you return to the beginning to start the entire process over again.

Now might be a good time to share some insightful statistics about the business buying and selling process: 

• Did you know that only about 20-30% of small businesses are successfully sold to a new owner? 
• Did you know that less than 2% of all buyer prospects successfully buy a small business?

As you may see, these statistics inform many of the actions we take as professional brokers and may be helpful to keep in mind as you navigate the buying/selling process. 

The LOI, or non binding letter of intent to purchase, is a step near the end of the entire process. My colleague and mentor, Clint Fiore, has said on several occasions, that it is after the LOI that our role as business brokers becomes most significant or crucial. Candidly, after the LOI is where masterful business brokers earn their money. 

And so here I sit, after LOI on my very first engagement, up to my eyeballs with what we in the industry refer to as deal drama. I'm optimistic that both buyer and seller are motivated enough to creatively solve the challenges that we are facing and my team and I are competent enough to successfully steward this transaction to the closing table.

In the meantime, here are a few lessons I'm taking away from the experience: 

For Buyers:

• Be patient and offer the seller as much grace as you can. It is not uncommon for a Seller to go through a period of grieving the future loss of their company. This can result in some incongruent behaviors that look like they are trying to slow down the momentum or even sabotage the deal. 
• Speak candidly with your broker -- not the seller. It is important that you express your authentic feelings and state your position clearly to your broker. A skilled broker will have the tools required to communicate that information to the Seller in a way that's less likely to compromise the trust that's been established between the Buyer and Seller. 

For Sellers: 

• Move as quickly as possible. In the industry we say, 'time kills all deals'. It is in the Seller's best interest to move as quickly as possible once they have selected the right buyer for their business. It may feel counterintuitive at times but given the stats I share above on how many small businesses are successfully transacted to a new buyer (only 20-30%) it behooves Sellers to close as quickly as is prudent. Remember, your Buyer is making a significant purchase and any time things slow down or resistance is felt, they can begin to second-guess their decision to invest in you and your company. 
• Make Due Diligence your top priority. The LOI is the start to a process that we call, Due Diligence. It is when the Buyer reviews and inspects sensitive company data in order to confirm the business they are buying is the one that has been represented. There are a long list of questions and/or requests that can be made during this time. In addition to continuing to run your company as if you'll never sell, you must also place a Buyer's Due Diligence requests at the top of your priority list and complete your homework assignments promptly. 

And I'm curious to know your thoughts: which of these tips resonates most for you? What would you add?