An LOI Is Not a Closing

I recently closed two business sales, and both had something in common.

The buyer who ultimately purchased the business wasn't the original buyer.

In both transactions, an initial buyer didn't make it to the closing table. Another buyer ultimately stepped in and completed the acquisition.

It's a good reminder of something that's easy to forget during the excitement of selling a business:

An accepted offer or signed Letter of Intent (LOI) is an important milestone.

But it isn't a closing.

There's Still a Lot of Work to Do

Once an LOI is signed, the transaction typically moves into due diligence.

Depending on the deal, there may still be:

* Financial due diligence * Acquisition financing * Legal due diligence * Lease assignments or negotiations * Licensing or regulatory requirements * Purchase agreement negotiations * Working capital discussions * Transition planning * Other closing conditions

Any one of these can raise questions or create issues that need to be resolved.

Sometimes they can be resolved.

Sometimes they can't.

That's why I caution sellers against treating a signed LOI as if the sale is already complete.

Keep Your Foot on the Gas

There's another mistake sellers can make after accepting an offer.

They start checking out.

After years of running a business, it's understandable. There's finally a buyer, a price has been agreed upon, and the finish line appears to be in sight.

But this is exactly when an owner needs to keep their foot on the gas.

Keep selling.

Keep serving customers.

Keep managing employees.

Keep watching expenses.

Keep paying attention to the financial performance of the business.

The buyer is still evaluating what they're purchasing.

If revenue suddenly declines, a major customer leaves, margins deteriorate, or other problems emerge between the LOI and closing, the transaction can become more difficult.

In some cases, the buyer may try to renegotiate.

In others, the deal may not close at all.

Don't Mentally Spend the Proceeds

Receiving an offer is exciting.

Signing an LOI is exciting.

But I tell sellers not to mentally spend the proceeds until the transaction actually closes.

There are simply too many things that still need to happen.

That's also why having a good sale process matters.

Finding an interested buyer is only one part of selling a business.

The transaction still needs to make it through due diligence, financing, documentation, negotiations, and closing.

And if the first buyer doesn't get there, you may need to be ready to go back to the market and find another one.

I recently experienced that firsthand on two transactions.

Both ultimately closed.

Just not with the first buyer.

The lesson for business owners is simple:

Keep your foot on the gas until the money is in the bank.