Managing Offers When Selling Your Business

Receiving and accepting an offer for your business is an exciting moment in the business sale process. While the end isn’t yet in sight, you are nearing the finish line.

Before receiving an offer, you have:

• You have readied and priced your business.
• You have screened initial responses to your sale offering and followed up with seemingly capable prospects.
• You have verified the qualifications of your prospects and narrowed your candidates to those who best fit with your business and exit plan.
• You have determined your most qualified buyer prospect and provided information about your business.
• You have answered questions and shared your objectives for sale timing and payment.
• You have verified your trust in the buyer’s qualifications to buy your business.

It is now time for your top buyer prospect to make a move. This is the moment when you, or your broker if you are using one, receives a letter of intent to buy your business.

Receiving the Buyer’s Letter of Intent

The letter of intent outlines the buyer’s purchase proposal. Be sure that, either directly or through your broker, you receive this offer in writing. If it comes in the form of a conversation, do not begin discussions. Instead, ask the buyer to detail price and terms in writing so you can respond thoughtfully with input from your accountant and attorney.

The letter of intent is not a binding legal document, but it forms the basis for all following discussions that lead, if all goes well, to the formal purchase offer.

The letter of intent outlines:

• The buyer’s proposed purchase price. This price will likely be lower than the one to be settled on during negotiations, as buyers expect the first offer to be countered, so they rarely put the maximum price they are willing to pay into the purchase proposal.
• The proposed purchase structure. The structure will likely include the amount to be provided as cash-at-closing and the amount to service as debt.
• Terms and purchase conditions. Among other conditions, this part of the letter of intent states that the offer is contingent on issues to be addressed before the sale closes.

The form of the letter of intent varies, and the responsibility for its preparation is with the buyer, and not with the seller. The business owner will, however, need to be prepared to review it carefully, and then to respond following the information in the next section.

Responding to the Buyer’s Proposal

Based on advice from your sale advisors, you will accept the buyer’s offer or, if your primary requirements differ, you will propose a counteroffer.

Be aware that this is not the time to negotiate fine points. Your objective is to reach agreement on the major elements of the proposal, including price, payment structure, exclusions or additions to the sale, timeframe, and your after-sale involvement.

Agreeing on other sale details will happen during the negotiations of final terms that will take place prior to drawing up the final purchase agreement and closing the deal.

Accepting the Buyers Offer

To accept the buyers offer, you and the buyer will sign either the initial letter of intent or a version that reflects mutually agreed upon changes. Either way, once your signatures are on the line, the letter signifies agreement to a purchase offer. Here is what typically happens next:

• Your broker, if you are using one, will collect a deposit, usually 10% of the proposed purchase price, to be held in an escrow account.
• If you are not using a broker, you and your sales team will decide whether to require a deposit, called earnest money, from the buyer. If earnest money is involved, once collected it is held in a third-party escrow account until any conditions stipulated in the letter of intent are adequately addressed an the sale closes.

Reaching a Deal and Accepting the Offer

The deal isn’t done until both you and the buyer reach a final agreement on the major elements of the buyer’s proposal, including price, payment structure, exclusions or additions to the sale, time frame, and your after-sale involvement. Other details can be ironed out during negotiations of the final terms. If you and the buyer differ greatly on the major elements of the proposal, then you may want to consider responding with a counter-offer. But before you respond, this is a good time to consult with your professional advisor(s). Receiving their input can help you make more objective decisions and avoid any unnecessary disputes.

After accepting an offer, the sale moves into the due diligence phase, where the buyer will meticulously review all the details of the business. All the preparation to list your business for sale will help prepare you for the final steps in selling your business.