The LOI Process

July 14, 2021

Industry expert, Gokul Padmanabhan, talks important processes when you're selling your restoration business, especially if you're going it alone.


Video Transcript


Speaker: Gokul Padmanabhan

Gokul Padmanabhan: Hey everybody, I'm Gokul from Restoration Brokers of America. I'm just sitting here in my office. I just returned from the RIA conference last week, and I want to talk about a conversation that I had with one of my clients up there, enjoying a beverage at the local bar at the conference. We were talking about other things and there's a bunch of us there at the table, and he goes, "Gokul I'm getting three or four calls from potential buyers." And I said, "That's great." And he goes, "You know, um, I may even have an offer on the table." And I said, "Well, you probably mean an LOI," and then this gentleman said, "Yes, it's an LOI And he asked me, "What is that, and what is the most important thing that I need to know about this?" And I thought about it for all of one second and basically told him "Look, a letter of intent, if you're going at this alone, a letter of intent is not an offer, and you got to understand that." Really? Yes. So he goes, Well, what is the process?" So it's very simple. So usually you get buyers that will give you a letter of intent. It's non-committal, and it's not a contract. Then you would go under the due diligence phase where the buyers are gonna look into your company. They're gonna look into your numbers, your financials, your HR, or your team, they're gonna look into everything. And then coming out of that process, it usually takes about 60 days or so, and coming out of that process, a couple of things are going to happen. If everything is perfect and what they thought about your company when they gave you the LOI is the same at the end of the due diligence period, then the letter of intent will get transferred into a purchase agreement, and then it will be signed. Now that's contractual, and that's when you're really under contract in the business. But more often than not, if things don't pan out in the due diligence period. that LOI is going to get revised. So they'll come back and say, "Well, we thought your business was whatever 1-2-3-4. We find out that it's only 1 & 2, and 3 & 4 were not as par as what we thought it was initially. So we're going to revise our offer, revise our letter of intent. And at that point you're going to have to decide whether you're gonna sign the new LOI or not. And then there's a third option. Sometimes it may go through their due diligence phase, and they may come out of it and they say, "You know what? This is not for us. This business is completely different than what we thought it was 60 days ago. So we're gonna withdraw our LOI." So that's what I told him. This is the process, and if you're going at it alone, it's a journey, and it's really important for you to understand the map. And how do you go from a letter of intent all the way, navigated all the way, to an offer and then to a close. Hope this helps. Thanks for watching. If you want to check out what we do, go to www.sellmyrestorationbusiness.com www.sellmyrestorationbusiness.com Look forward to connecting with you soon. Thanks.



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