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: a conversation about price range while you are still asking questions, then a written letter of intent that opens a protected diligence window, and only months later 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.

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.

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.

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 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, because 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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