It is quite common for prospective business buyers to spend an inordinate amount of time in the looking and analyzing stages but one cannot expect any meaningful results until you get into the habit of making offers if you truly want to buy a business.
Don’t get me wrong, the decision to present an offer should never be done recklessly. Conversely, it is a critical aspect to the process and one that every business buyer must become comfortable with doing. The fact is that nothing happens until someone makes an offer.
A few things every buyer must keep in mind:
Making an offer gets the ball rolling. It is the only vehicle that the buyer has to get a true measurement of what the seller is really thinking. Sure, there is an asking price, but that is not the purchase price. Yes, of course, many sellers will say they will do a cash-only transaction, but that is just talk, and rarely happens. Until the point that a buyer documents an offer, the parties are simply engaged in posturing. It’s all talk.
If you really want to take the seller’s temperature, you have to make an offer.
Letter of Intent or Purchase Agreement?
Personally, I prefer using a full blown Offer to Purchase whenever possible. It addresses far more components to the deal, and leaves less room for ambiguity later on. However, it is not always reasonable to draft a comprehensive Purchase Agreement and so a Letter of Intent is the route to go.
A Letter of Intent (LOI) works best when:
When a business broker is involved in the deal, they will provide the buyer with a template purchase agreement to use. Some even insist that a buyer MUST use their form which is completely ridiculous, so do not allow yourself to be bullied into that situation. On the other hand,
The Real Issue
It doesn’t matter whether you use an LOI or full Purchase Agreement or a broker’s template. The big issue here is that you have to make offers. Some will be flatly refused, others will launch serious discussions that will not result in a deal, but one will certainly lead to your purchase of a business.
I can understand how some buyers may be apprehensive about making offers, but once you get used to putting your terms to paper and in front of a seller, the entire deal dynamic shifts and the discussions become instantaneously more productive between the parties. Plus, that is when the fun really begins.
Here's a very helpful about about deal negotiations and making an offer
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