What actually happens between signing an LOI and closing
A founder I worked with signed a letter of intent last spring for a distribution business he had spent twenty two years building. The headline was $47 million, all cash, 90 day close. He told his wife it was done. Three months later the deal closed at $41.2 million, with $3 million rolled into buyer equity and $2.8 million pushed into an earnout tied to a customer he had lost during diligence. The buyer had not walked. Nothing had gone catastrophically wrong. This is just what happens between LOI and close when the seller walks in thinking the price is set.
The LOI is not the deal. It is the invitation to try to make a deal, on the buyer's timeline, using the buyer's specialists. Everything you thought was locked in becomes negotiable again the moment you sign.
The LOI is a contract to try to sell, not a contract to sell
A signed LOI is almost always non binding on price, structure, and closing. What it does bind is exclusivity. You agree not to talk to other buyers for 60, 90, or 120 days while the buyer's team goes through your business. That exclusivity clock is the entire game. Every day it runs, your alternatives shrink and the buyer's power grows.
A well negotiated LOI has: a specific price, a defined structure (stock or asset, cash versus rollover versus earnout), a fixed working capital target or clear methodology, a 60 or 75 day exclusivity window rather than 120, a process for how retrade requests get handled, and language that any material change in terms lets you walk without a break fee. The LOI is the moment your leverage peaks. Whatever you did not negotiate then is very hard to get back once diligence starts.
The exclusivity clock: 60 to 120 days is normal
For a business in the $10 million to $250 million enterprise value range with clean books, 75 to 90 days from LOI to close is typical. Add a regulated industry, a carveout, real estate, or messy financials and it stretches to 120 or beyond. Deals under 60 days are usually strategic acquisitions where the buyer knows the market cold and the seller is on their second or third transaction.
Weeks 1 and 2: kickoff, data room, and first requests
The buyer's deal team convenes: corporate development lead, outside counsel, Quality of Earnings firm (usually Big Four or a specialist like CBIZ or Marcum), tax counsel, often an R&W insurance broker, and, if the deal is levered, the debt provider. You get a diligence request list of 200 to 400 line items in the first week.
The list asks for things you have never assembled in one place: three years of monthly financials tied to bank statements, customer level revenue detail, employee census with compensation and tenure, every material contract, IP assignments, litigation history, tax returns and workpapers, entity documents, permits. If you have not been building a data room in the months before this, you spend weeks 1 through 4 scrambling while the exclusivity clock burns.
Weeks 3 through 6: the deep dives that reprice deals
Quality of Earnings. The QoE firm rebuilds your EBITDA from the ground up, normalizing for owner compensation, related party rent, personal expenses run through the business, one time items, and revenue recognition timing. In my experience the QoE number lands 5 to 15 percent below the seller's internal EBITDA more often than not. If the LOI valued the business at 8x EBITDA and QoE takes $1 million out, that is $8 million off the headline price unless you fight it. More on what a Quality of Earnings review actually digs into.
Legal diligence. Outside counsel reads every contract, lease, loan, and employment agreement, looking for change of control provisions that let a customer or vendor walk when you sell, non assignable contracts, unrecorded liens, and IP never properly assigned to the company.
Tax diligence. Tax counsel confirms filing history, looks for state nexus exposure (a big one if you have remote employees or ship into states you never filed in), reviews sales and use tax, and models after tax outcomes under different structures. This is where the asset versus stock sale decision gets pressure tested. A structure change here can move seller net proceeds by seven figures.
HR, IT, and commercial. HR diligence looks at classification, wage and hour, benefit plan funding, and key employee retention risk. IT diligence pokes at cybersecurity, data privacy, and the state of your systems. Commercial diligence is often the buyer's own team calling your top ten customers under a cover story to test loyalty and concentration. That last one is quiet and dangerous.
Weeks 7 through 10: papering the deal
By week 7 the buyer's counsel produces a first draft of the purchase agreement, usually one hundred plus pages. The negotiated economics from the LOI are in there, but so are dozens of provisions that were not, and that materially affect what you take home.
The battles here are over: the reps and warranties you give (broader reps mean more post closing exposure), the indemnification cap and survival period, the escrow or holdback, the working capital peg and true up mechanic, the definition of debt and debt like items (where a deal can silently lose $2 million as deferred revenue or customer deposits get reclassified as debt), materiality qualifiers, and covenants between signing and closing.
Working capital peg. This is where sellers routinely leave money on the table without realizing it. The buyer proposes a target based on a trailing average, usually twelve months. If your working capital naturally runs higher in the season you close in, and the peg was set to a lower annual average, you deliver excess working capital to the buyer for free at close. Understanding how the working capital peg is set and negotiated is one of the highest dollar per hour exercises in the transaction.
Disclosure schedules also get finalized here. These are the exhibits where you list every contract, customer, piece of IP, and pending dispute. Anything you fail to disclose becomes a breach of representation you own after closing. Getting these right is tedious and it is where deals die from exhaustion when the seller has not prepared.
Weeks 11 and 12: closing conditions and funds flow
The last two weeks are about closing conditions. Third party consents flagged in week 4 need signatures. Landlord estoppels. Lender payoff letters. Lien releases. Officer and director resignations. If R&W insurance is part of the structure, the policy binds now.
A funds flow memo circulates showing where every dollar goes at close: to you, to lenders being paid off, to escrow, to advisors, to tax authorities, to any minority holders. Review it carefully. I have seen funds flow memos with the seller's net wire off by five figures because a fee was double counted or a state tax was missed.
Close happens by wire, usually mid morning Eastern. You sign 60 to 100 signature pages, the wires go out, and you own a bank balance instead of a business. It is quieter than most people expect.
What actually derails deals in diligence
Deals collapse or reprice for a handful of reasons that repeat across industries. If any of these describe your business, get ahead of them before you sign, not after.
The QoE surprise. You told the buyer the business does $8 million of EBITDA. QoE lands at $6.9 million. The buyer retrades or walks. This is the single most common repricing event.
The customer concentration reveal. You knew one customer was 22 percent of revenue. You did not know that when commercial diligence called them, they mentioned they had been shopping the contract. That customer becomes a risk premium, a specific indemnity, or an earnout carveout that shifts $3 million into contingent consideration.
The working capital dispute. Rarely a killer, often a $500,000 to $2 million reduction at close, and sometimes a post closing true up dispute that drags for six months.
Key employee flight. Your operations lead figures out a deal is happening, knows the buyer's reputation for cutting operations roles post integration, and takes another offer three weeks before close. The buyer demands a price cut or an escrow tied to hiring a replacement.
Regulatory or licensing. State licensing that does not transfer. A permit requiring re application under new ownership. Environmental exposure at an owned property. Any of these extend timelines or force a restructure.
Buyer financing wobble. Less common with strategic buyers and well capitalized sponsors, but real. The buyer's debt package changes terms mid diligence, and suddenly they need a seller note or rollover to make the math work.
What to have ready before you sign
The founders who close at or near their LOI price are the ones who did the diligence work on themselves 6 to 24 months before the process started. That looks like this.
Books that tie to the bank, monthly, for three years. If your CFO cannot hand you a monthly P&L, balance sheet, and cash flow that reconciles to the bank without a workaround, fix that before you go to market. QoE finds every gap.
A complete contract inventory. Every customer, vendor, lease, loan, license, and employment agreement in one place with executed version and amendments. Know now which have change of control provisions.
Clean cap table and equity records. Every share, option, SAFE, convertible, vesting schedule, and 409A valuation. If any employee ever received equity on a handshake, paper it before diligence finds it.
IP ownership documented. Every domain in the company name, not the founder's personal account. Trademarks registered. Every developer or contractor who ever wrote code has a signed IP assignment. Missing developer assignments are the most common IP issue I see, and they can hold up a deal for weeks.
Key customer contracts current and assignable. Your top customers are on paper, current, and either assignable or with change of control language that will not trigger a re negotiation on sale. If any of your top ten are running on expired evergreens, renew them at market terms before you sign.
A more complete pre sale readiness view is here: Business Readiness Scorecard. Useful if you are 6 to 24 months out.
The one thing to take from this
The LOI is the moment your leverage peaks. From the second you sign, every day that passes shifts power to the buyer. What you negotiate before you sign, price, structure, exclusivity length, working capital methodology, retrade protocols, is what you actually get. What you leave for later is what you lose.
The best sale processes I have seen are ones where the seller treated the six months before the LOI as the real work and the ninety days after as paperwork. That sequencing, more than any tactic during diligence, is what protects the number.