The Deal Process, Explained
Once a serious buyer surfaces, the sale moves out of marketing and into the deal process. Here is what happens in each stage and where sellers most often stumble.
Stage 1: Letter of Intent (LOI)
Timeline: 15 to 45 days from first serious buyer conversation.
The LOI sets the deal skeleton: price, structure (asset sale vs. stock sale), earnest money, exclusivity period, closing timeline, employment/consulting terms, and any earnout or seller financing. Price is usually non-binding, but exclusivity and confidentiality are binding. This is the most important negotiation of the sale, everything downstream anchors here.
Stage 2: Due Diligence
Timeline: 45 to 90 days after signed LOI.
The buyer, their lender, and their advisors verify everything you claimed. Expect requests across:
- Financial: 3 years of tax returns, monthly P&Ls, AR/AP aging, bank statements, sometimes a Quality of Earnings report.
- Legal: Corporate records, contracts, litigation, IP, employment agreements, non-competes.
- Operational: Customer lists, vendor contracts, staffing, systems, licenses and permits.
- Real estate: Lease, landlord consent to assignment, environmental Phase I if property is involved.
This is where the majority of deals die. The fix is preparation before you list, not scrambling once diligence starts.
Stage 3: Definitive Purchase Agreement
Timeline: overlaps with the last 30 days of due diligence.
The lawyers convert the LOI into a binding purchase agreement. Key negotiated sections:
- Representations and warranties (what you promise about the business).
- Indemnification (what you owe the buyer if a rep turns out to be wrong).
- Escrow holdback amount and release schedule.
- Working capital target and adjustment mechanism.
- Non-compete scope and duration.
- Transition services and seller training.
Stage 4: Closing
Timeline: 15 to 30 days after signed purchase agreement.
Final conditions get satisfied: lender funding, landlord consent, license transfers, insurance binders. On closing day, signatures happen, funds transfer through escrow, keys change hands. Then the transition period begins, typically 30 to 90 days of seller training and support.
The typical stretch
From signed LOI to funded closing is usually 90 to 180 days. SBA-financed deals sit at the longer end because of underwriting and SBA approval. Cash deals with strategic buyers can close faster.
BizBuzz Brokers manages this process for sellers so you can keep running your business. If you want to know what a deal on your business would actually look like, get in touch.
Frequently asked questions
Is an LOI binding?+
The price and structure sections are usually non-binding. Exclusivity, confidentiality, and expense provisions are typically binding. Read every section carefully before signing.
What kills most deals?+
Surprises in due diligence: cash sales not on the tax return, customer concentration the seller downplayed, an unassignable lease, pending litigation, or environmental issues. Almost always avoidable with preparation.
What is a working capital adjustment?+
The buyer expects the business to be delivered with a normal level of working capital (AR, inventory, cash). If actual working capital at closing is below the agreed target, the shortfall comes off the purchase price at closing.
What is an escrow holdback?+
A portion of the purchase price (typically 5 to 15 percent) held in escrow for 12 to 24 months to cover any indemnification claims the buyer may have against the seller for breaches of representations or warranties.
Can the deal fall apart after the purchase agreement is signed?+
Yes, though it is rare at that stage. Financing failure, a material adverse change in the business, or discovery of undisclosed liabilities can all trigger termination rights up until closing.
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