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4 mistakes to avoid after receiving a letter of intent

| Apr 30, 2020 | Uncategorized |

Selling a business is complicated and stressful. Business owners can have a lot at stake, and there are many moving parts that affect valuations, price and conditions of the transaction.

At the first sign that a sale could happen, which could be receiving a letter of intent, it can be easy to get anxious and want to push forward as quickly as possible. However, moving too fast is one common mistake people can make at this stage, as are the missteps we examine below.

Mistake #1: Proceeding too quickly

Closing a deal quickly is typically more desirable than dragging the process out. However, there is a fine line between expeditious and careless.

For instance, pressing forward without considering deal structure or failing to create a thorough closing checklist can lead to costly delays. Failing to conduct proper due diligence could also result in unfortunate developments.

Mistake #2: Not being involved

While buyers are responsible for many aspects of this transaction, sellers must be involved in the process. Owners can do this by evaluating purchasers, actively negotiating, responding quickly to questions or concerns, and finding solutions to issues that may threaten the sale.

When the seller is an active (or proactive) part of the deal, he or she can prevent lapses and delays.

Mistake #3: Assuming the sale is inevitable

An LOI is not the same as a purchase agreement or contract. It states the basic elements of an offer and establishes a framework for the rest of the transaction. And as we see in this example LOI, an LOI typically states that it is a non-binding document.

As such, parties should not assume an LOI is a contract or grants anyone rights regarding the acquisition. After receiving an LOI, business owners should remember that parties could still back out and change the conditions of an offer.

Mistake #4: Being too casual or information about the process

An LOI may not be a binding agreement, but it is still a critical document that lays the foundation for a sale. Parties who fail to appreciate this by accepting an informal LOI or navigating the process without legal guidance can ultimately create more problems for themselves.

Considering the complexity of selling or buying a business, parties must proceed carefully and take care to avoid these common mistakes.

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