How to Make an Offer on a Business

An Offer Is a Sequence, Not a Moment

Buyers picture one dramatic number sliding across a table. The real shape is a sequence that starts earlier and commits later than most first-timers expect. It runs from a conversation about price range while you are still asking questions, to a written letter of intent that opens a protected diligence window, and only months later to the purchase agreement where the binding promises actually live. Each step is cheaper to walk away from than the next, which is the design. The buyer who understands what each stage commits, and what it deliberately does not, negotiates the whole path better than the one saving courage for a single moment.

One step sits between the conversation and the letter, and it is the cheapest move on the path. An IOI is a short non-binding letter naming a rough range, which earns a management meeting without opening the terms fight a letter of intent touches off. Confusing the weight of the two is a first-timer tell: an IOI floats a range, and the letter that follows names one price and asks for exclusivity.

What the First Number Anchors On

The first number is not what the business is worth to you; it is what the cash flow can carry. Start from what the market pays for the trade, then run the underwriting. After debt service on the price you are contemplating, a market wage for the seat you will fill, and a cushion for the year something breaks, does the deal still clear? A lender will run exactly that arithmetic at a coverage ratio near 1.25, so a number that fails it is not really an offer; it is a conversation that dies in underwriting three months later. Anchoring on coverage also gives the number a spine in negotiation: you are not haggling taste, you are stating what the business itself can afford.

Which means your number will often land below the asking price, and that is the situation almost every first offer is actually in. An asking price is usually a multiple applied to a restated earnings figure, and neither half of that has your debt service in it. So the gap is not a disagreement about the business. It is the difference between what a seller hopes and what a lender will fund.

Say what your number is anchored on rather than negotiating the gap itself. A broker can take “this is what it clears at the coverage a lender needs” back to a seller; they cannot do anything with a lower number and no reason. If the gap is wide, the useful question is which of the two inputs is wrong, the earnings or the multiple, and what comparable deals closed at settles the second faster than an argument does. Where neither moves, the answer is that this deal is not yours, which costs a conversation rather than a year.

What the LOI Contains, and What It Binds

The letter of intent states price, structure, what stays and what goes, the diligence window, and the closing target, and almost all of it is deliberately non-binding. What it does bind, in most drafts, is exclusivity and confidentiality: the seller stops shopping the deal while you spend real money verifying it. Where an earnest deposit appears, its refund terms follow the written words rather than anyone’s sense of fairness. Work through the LOI terms worksheet before anything is drafted, so the conversation with your attorney starts from decisions rather than from a blank page, and read what an LOI is worth when a seller walks before you treat the signature as safety.

The deposit is the question buyers trained on house sales ask first, and the plain answer is that most main-street deals close with no earnest money at all. Where a broker or a seller asks for one, four things get written down before any money moves. Who holds it: an escrow agent or an attorney's trust account, never the broker's operating account. What returns it: a financing decline and a diligence walk, named as outs. What forfeits it: the buyer's own refusal to close on the agreed terms, and nothing wider. And who pays the holder's fee, which is usually split or the seller's, since the seller asked for the protection. A deposit whose outs you cannot recite from memory is one you have not negotiated yet.

Terms Move More Than Price

Two offers at the same price can be a hundred thousand dollars apart in substance. A seller note shifts part of the price into the seller’s continued confidence in the business; its size, rate, and standby terms move the cash you need at close and the risk you carry after. Whether the deal is an asset or stock sale moves taxes on both sides. Working capital, the transition period, a training commitment, and any earnout each carry real money inside them. Sellers read certainty too: financing conversations already started and diligence scoped in advance make the same price a stronger offer. Price is the headline; the terms are the deal.

After the Signature, the Clock Runs

A signed LOI starts the most compressed stretch of the whole path: diligence engagements, quality of earnings, lender underwriting, landlord consents, and license transfers, all inside an exclusivity window measured in weeks. The LOI worksheet here starts at 60 days of exclusivity against 45 of diligence, which is the shape those two dates usually take rather than a rule. The pacing and the dependencies are their own subject, covered in how long it takes, and the discipline of running the window is most of the diligence checklist. What matters at offer time is simpler. Do not sign an LOI you are not resourced to execute. A buyer who lets exclusivity expire unready has spent the seller’s patience and their own credibility, and the market for good businesses is small enough to remember.

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