After determining how much the business is worth, the next step of the business purchasing process is making an offer to the current owner. Making an offer is most often accomplished through drafting a letter of intent.
A Letter of Intent is sometimes referred to as an LOI, a memorandum of understanding, or an MOU. A letter of Intent is a kind of non-binding contract that outlines the proffered bid in detail including the terms of the proposed agreement. The purpose of the LOI spells out the main points of a business deal, and it serves as a kind of protection if a deal breaks down during negotiations. Very rarely does this letter go without alteration.
At this stage of negotiations, both the current and the potential owner must enter into a series of discussions regarding payment. Not only must the price be agreed upon, but the method of payment must be, as well. Installments are a common method of payment, the only shortcoming being the relatively smaller sum received by the current owner up front. However, if the payment for the business comes in a lump sum, the current owner loses out on the interest that would accrue over the course of installment payments. Taxes also figure in to this part of the negotiation, as in either case, the tax liability is a consideration.
In making an offer to a business owner, having a trusted lawyer is imperative to brokering a successful deal. Lawyers can help in the process of making an appropriate offer once a suitable business is decided upon, and they can also be useful when involved in legally transferring rights from owner to owner, and ensuring that a new business is free of liabilities and legal responsibilities that may be left over from previous owners. Obtaining a lawyer to help in making an initial offer can save significant time and money.
For an interested entrepreneur, striking a balance between the interests of the seller and buyer is the key to a successful business deal. Proper research and ample professional advice is necessary to brokering a satisfactory arrangement.
