Many of the terms used in discussing a deal can be confusing for business owners. In this blog we demystify “Dealmaker Speak” with an article or two every month.
Let’s talk about Letter of Intent or LOI as the dealmakers say. Here is what is important about that document for you, the business owner, as you try and wrestle with whether to exit your business one day.
If your company is up for sale and a buyer is actually interested in your company they will give you a letter of intent. It will include an offer number.
What this means is that they are interested in dating, not getting married yet. Your company is like Jennifer Aniston. She gets asked out a lot but has yet to find the buyer who will put a ring on it. Sad but true.
To get that ring, your company has to survive due diligence. In this process, the buyer is searching for all the reasons why they should NOT buy your company. They want to find all the dirty laundry that justifies adjusting the offer number down or just walking away. They are proving to themselves that this company is worth investing in.
Just like people do when they’re dating, they spend a few weeks testing the waters. Due diligence is time consuming, distracting and humbling for the business owner.
But if you do get a letter of intent it’s time to make some head adjustments:
- If you received a letter of intent, you have been picked over hundreds of other businesses. Let that sink in. Kind of like a ‘Cinderella’ reversal of fortunes in suddenly getting to go to the ball. Be impressed.
- Then imagine letting go. Let go of your emotional attachment to your company. Let go of the need for more money. Embrace your soon to be new identity. Be willing to sell for the number on that Letter of Intent. There may be some wiggle room. But that number is the one you have to make peace with. You don’t want to just go to the ball, you want that glass slipper to fit. Remind yourself that the chances of Prince Buyer finding you again are slim.
With more than 90% of business owners failing to sell their companies, all business owners need to recognize that at the letter of intent stage, the deal is yours to lose. Those two mindset adjustments will get that ring in to your bank account.
For more on letters of intent go watch Pino Bacinello of Pacific Business Brokers