When dealing in professional M&A as a business owner, the phase between the Letter of Intent (LOI) and the actual money transfer is where the deal is either brought into reality or it falls apart under the weight of a thousand small details. The Letter of Intent (LOI) is often celebrated as the finish line by many, but in reality, it is merely the entrance to the Green Zone, which is the final, high-pressure sprint where the buyer has exclusive rights to your data and the power to walk away if they don’t like what they see.
While the LOI (Letter of Intent) is a sign that there is an alignment of the minds on price and structure, the transition to closing is a 60 to 90-day window filled with forensic accounting, legal maneuvering, and high-stakes negotiation. The statistics in the M&A world are proof of this, roughly 50% of deals that reach the LOI stage fail to close. Success in this phase requires moving beyond sentiments and gut feelings and instead mastering the mechanics of due diligence. Let’s look through the process of getting your business sale from LOI (Letter of Intent) phase to the finish line.
A Letter of Intent is a hybrid document, and while the purchase price and deal structure are usually non-binding (meaning either party can technically walk away without a legal penalty, other clauses are strictly binding and carry significant weight.
The LOI serves as the roadmap for the definitive purchase agreement when you sell a business. It outlines the intent of the parties (as the name implies), but it also triggers the buyer’s right to inspect the business. For the seller, the most significant commitment made at this stage isn’t the price but exclusivity.
Once you sign an LOI, you enter a “No-Shop” period, typically lasting 45 to 90 days. During this time, you are legally barred from talking to other potential buyers. This creates a massive shift in leverage.
Before the LOI, the seller has market power. After the LOI, the buyer has the seller seemingly locked up. If the buyer discovers an issue during due diligence, they may try to re-trade (lower the price), knowing the seller cannot easily walk away to a backup offer without restarting the month-long processes of getting a new buyer. Protecting your leverage during this window requires speed, transparency, and a high-performing business. When these are in place, you’ve got nothing to worry about.
While you likely signed an NDA early on, the LOI confidentiality clause is often more specific. It protects the fact that a deal is even happening. If your employees or competitors learn of the sale before it is sealed, it can destabilize your operations. This gives the buyer more leverage to lower the price.
You could see the LOI as a first date, and due diligence as when the party interested carries out a background check. This is the period where the buyer verifies every claim you made during the marketing phase. A comprehensive due diligence checklist generally covers four main pillars.
Financial Diligence (Quality of Earnings): This is the most invasive part of the whole process. The buyer’s accountants will perform a Quality of Earnings (QofE) report. They aren’t just checking if your math is right; they are checking if your profits are sustainable. Here, your add-backs are also verified. If you claimed $100k in personal travel as an add-back, they will want to see the receipts and the proof that those expenses won’t exist for the new owner. The buyers also calculate the average amount of cash, inventory, and receivables needed to run the business. If you try to strip the business of cash before closing, the buyer will simply reduce the purchase price by that amount. They will also ensure you aren’t “pulling forward” future revenue to make the current months look better. All of these are what the buyers look for during financial diligence.
Legal and Compliance Diligence: The buyer’s counsel will review your corporate minutes, cap table, and material contracts. They are looking for landmines to capitalize on. Do your contracts with key vendors or customers allow you to sell the business without their permission? If not, you’ll spend the next 60 days begging for consent to assign. Misclassification of independent contractors as employees can lead to massive back-tax liabilities that a buyer will want you to escrow funds for. Do you actually own your trademarks? Did a former developer sign an IP assignment agreement? If not, the buyer may feel they are buying a lawsuit.
Operational and Technical Diligence: For eCommerce or tech businesses, this involves a code audit or a review of your supply chain. If you sell a physical product, the buyer may visit your warehouse or interview your 3PL provider to ensure the operations are as seamless as you described. They are looking for scalability, and we consider whether this business can double in size without the systems breaking down.
Buyers want to know who the key people in the business are. If the business relies entirely on one star salesperson or a genius developer who hasn’t signed a non-compete, the buyer’s risk profile skyrockets. They may require these key employees to sign new stay-on agreements as a condition of closing.
As due diligence nears completion, the lawyers begin drafting the Asset Purchase Agreement (APA) or Stock Purchase Agreement (SPA). This is the 50 to 100-page document that supersedes the LOI and governs the actual transfer of ownership. The Definitive Purchase Agreement (DPA) is the legally binding evolution of your LOI, transforming existing handshake terms into enforceable law. While the price is set, the true value is often won or lost in the Representations and Warranties and Indemnification sections. Pay close attention to Restrictive Covenants, which dictate your non-compete boundaries, and the Working Capital Peg, which ensures you leave enough cash behind to fuel the engine you just sold.
This is the section where you, the seller, make a series of statements of fact about the business. For example, “The financial statements are accurate,” “There are no undisclosed lawsuits,” “The inventory is sellable”. Here’s where it gets tricky; if any of such statements turn out to be false after the sale, the buyer can sue you for damages. To protect themselves, buyers often insist on an Escrow or Holdback, which is usually about 10% of the purchase price to be held for 12–24 months to cover potential breaches of these warranties.
The indemnification section outlines who pays if something goes wrong post-close. If a customer sues the business for an injury that happened before the sale, the indemnification clause ensures the seller is the one who pays the bill. Negotiating the maximum you could owe and the minimum claim amount before you pay is where the most intense legal battles occur.
Even after the contract is written, the deal isn’t closed until the conditions to closing are met. Some people wonder what can go wrong between LOI and closing, but there are a few things:
If your buyer is using an SBA 7(a) loan, the letter-of-intent-to-close timeline will naturally be longer. SBA loans are necessarily thorough and can take 60 to 90 days on their own.
Banks will require their own independent valuation and a site visit. As a seller, you must be prepared for the bank to be even more conservative than the buyer. If the bank’s valuation comes in lower than the purchase price, the buyer will have to bring more cash to the table or ask you to lower the price. This is why having a business broker who understands bank underwriting is important.
The last seven days of a deal are a whirlwind of signatures and logistical check-ins. This is where deal fatigue is at its highest, and emotions often boil over. But how these last days are handled can determine the successful closing of the deal.
Final Lien Search: This is done 7 days prior. The buyer’s attorney performs a final UCC search to ensure no banks or creditors have a claim on the business assets. Any outstanding debt must be paid off at the closing table from the sale proceeds.
Inventory Count: This can be done 2-3 days prior. If the deal includes inventory, a physical count is usually performed. The final purchase price is adjusted up or down based on the actual value of stock on hand vs. the target amount agreed upon in the LOI.
Signature Escrow: Can be in 24 hours to closing. All parties sign the documents, but they are held in escrow by the attorneys. They aren’t legally binding until the money moves. This prevents the missing signature drama on closing day.
The Flow of Funds: This typically occurs on the closing day. The buyer sends the funds. Once the seller’s attorney confirms receipt, the documents are released, the keys and passwords are handed over, and the deal is officially closed.
Understanding what can go wrong between LOI and closing allows you to be proactive. Most failures are not due to malice, but due to a loss of trust which could be due to the following:
The biggest mistake a seller can make is taking their eye off the ball during due diligence. If sales drop during the 60 days of the LOI window, the buyer will use it as an excuse to lower the price or walk away. Run the business as if you are going to own it for the next ten years.
You must maintain your marketing spend, keep your employees motivated, and continue your growth trajectory. Hire a professional team to handle the heavy lifting of the due diligence requests so you can focus on maintaining your revenue. A strong finish in the final month is the best way to ensure the buyer stays excited and the wire arrives on time.
Typically 60 to 90 days. All-cash deals with a prepared seller can close in as little as 30 days, while SBA-financed deals usually take the full 90.
No, if there is an exclusivity (no-shop) clause. Doing so is a breach of contract and can lead to legal action or the buyer demanding their due diligence costs be reimbursed.
It’s when a buyer attempts to lower the purchase price after the LOI has been signed. This usually happens if due diligence reveals lower profits, higher risks, or unrecognized liabilities.
Generally, each party pays their own legal and brokerage fees. Certain filing fees (like UCC filings) are often split or paid by the buyer.
The LOI starts the clock on the most sensitive part of the sale. Typically signals that the deal is nearing its end. You give up your market power for the hope of a close; make sure the buyer is fully qualified before signing. With transparency, you get better results. You cannot always hide the problem in due diligence – it won’t work, it will only kill the deal later when trust is gone. The business must perform at its peak in the final stages to preserve their valuation. So keep the business running during the deal’s closing.
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