🧠 Lead Story: The Art of Herding Cats… Deal Edition
Most buyers think buying a business is about the buyer, the seller, and a couple of lawyers.

The reality?
Every meaningful deal is a small army operation.

It’s not unusual to have 10+ parties, all with different goals, incentives, and calendars, who somehow have to hit the same close date.

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When you realize that 50% of M&A is project management, the game changes.

🔎 Meet the Cast of Your Deal
Here’s who’s typically involved:

• Buyer – You, the quarterback of the deal whether you like it or not.

• Buyer Counsel – Your lawyers, ideally SBA-savvy and ready to run interference.

• Seller – Often balancing running the business with selling it.

• Seller Counsel – Sometimes M&A pros, sometimes the seller’s cousin who “does contracts.”

• Lender – The debt source, often a bank or non-bank SBA lender.

• Lender Counsel – Separate from your lawyer, with their own requirements.

• Landlord – The gatekeeper for any lease-dependent business.

• Broker / Intermediary – The deal’s matchmaker, sometimes a bridge, sometimes a bottleneck.

• Investors / Equity Partners – If you’re raising capital, they have their own timelines and requirements.

• QoE Provider – Your financial diligence team, vetting the seller’s numbers.

• Other Advisors – Tax, HR, IP, insurance — the specialists who pop in and out.

Why Stakeholder Herding Matters
One slow responder can delay everything.
We’ve seen:

• Landlords holding up $3M+ closings over minor lease edits.

• Lender counsel delaying for two weeks because they’re buried in other closings.

• Sellers going dark to “finish out the season” before reviewing documents.

Takeaway: Your deal moves at the speed of its slowest participant.

The Coordination Problem
The biggest hidden risk isn’t legal complexity, it’s timeline misalignment.

Your lender can’t finalize until they have the lease.
The landlord won’t sign the lease until they have the lender’s subordination agreement.
Your investors want to wire after the operating agreement is finalized.

These dependencies create circular delays.
If no one’s mapping them, you’re stuck.

Our Stakeholder Herding Playbook
Here’s how we keep 10+ parties moving:

1. Build the Timeline Early
We push for a unified close date within the first week post-LOI. Everyone buys in, lender, landlord, seller, counsel.

2. Map Dependencies
We document which steps are blocked by others. Then we break the loops early.

3. Weekly Deal Calls
Short, focused updates with our internal team, plus lender calls. Silence kills deals.

4. Centralized Tools
We use Airtable, Notion, and our custom CRM to track every task and owner. Everyone knows what’s due and when.

5. Overcommunicate
No black holes. Every party gets clear updates, not legal novels, but enough to move forward.

🤯 The Emotional Layer
Stakeholder herding isn’t just logistics.
It’s psychology.

• Sellers who insist on a 30-day close, then delay three weeks on a document.

• Buyers who set the wrong expectations, then get frustrated with everyone else.

• Brokers pushing to “just get to the table” without addressing deal killers seriously.

Takeaway: Set expectations early, repeat them often, and protect your team from whiplash.

Real-World Friction Solved

One of the best examples we’ve seen recently?
A client who took the lead on stakeholder herding, sending a short, clear update email every Monday to every single party on the deal. No fluff, just bullet points on what was done, what was next, and where they needed help.

That simple discipline kept everyone aligned, avoided duplicate asks, and stopped “radio silence” from killing momentum.

The result: the deal closed in under 30 days, faster than most people can get an LOI signed.

Takeaway: Project management is the deal. Not an add-on. And sometimes the simplest systems deliver the fastest closes.

Acquisition Insight: The Herd Moves at the Speed of Trust
Every call, email, and update is building (or eroding) trust.
That trust is what gets the 10+ parties to show up for you when the deadline is tomorrow and you need something now.

Need a Buyer-Friendly LOI Template?
If your LOI isn’t clean, structured, and SBA-compliant — you’re inviting chaos later.

Our in-house LOI template has helped close over $1B in M&A transactions:

✅ Clean and professional
✅ Buyer-favorable
✅ SBA-compliant
✅ Reviewed by top lenders

Here’s the kicker:
If you use our LOI template, we’ll finalize it for free when you retain us.

→ Email info@smblaw.group with “LOI Template” in the subject line.

Final Word
Buying a business is not just legal work.
It’s logistics.
It’s psychology.
It’s diplomacy.

Master stakeholder herding, and you’ll close more deals — faster and with fewer scars.

📬 info@smblaw.group — we’ll help you get it done right.

⚠️ Disclaimer
This newsletter is for informational purposes only and does not constitute legal, financial, or investment advice. Certain examples are anonymized and modified for confidentiality and educational purposes. SMB Law Group is a strategic partner of select buyers and may benefit financially from engagements. Always consult a qualified professional before making legal decisions.

You close the deal. Day 1, everything runs fine.
Week 3? The founder is on vacation, and nobody knows how to run payroll.

This is owner-dependence — the silent killer of small business acquisitions.
It hides in plain sight. And it will tank your deal if you don’t fix it fast.

📈 Acquisition Insight

Here’s how to spot it:

• No org chart

• Every client calls the owner directly

• SOPs live in the seller’s brain

• Seller approves every expense over $100

Mitigate by:

• Documenting key processes pre-close

• Identifying the true second-in-command

• Structuring your deal to incentivize seller transition support

🔧 Behind the Scenes

We now include an “Owner Dependency Matrix” in every diligence checklist.
It scores the business across 5 areas: customer, vendor, ops, cash, and people — to surface where the risk lives.

We’re building a template version to share soon.

👀 Call to Action

Want the matrix we use to spot owner traps before we close?
👉 Get early access here

A $400k cleaning business with recurring revenue and two crews?
Can be a better deal than a $4M SaaS with churn and no cash flow.

Small deals aren’t sexy.
But they’re often profitable, low-stress, and cash-flowing from Day 1.

📈 Acquisition Insight

We love:

• Route-based businesses (trash bin cleaning, pest control, HVAC)

• Owner works < 10 hours/week

• 20%+ net margins

• No online marketing — yet

Buy small. Polish. Automate. Raise prices. Win.

🔧 Behind the Scenes

We’ve bought and supported multiple sub-$1M deals that now throw off 6 figures annually with minimal owner effort.

We’re compiling our “Top 12 Small Deal Types” playbook right now.

👀 Call to Action

Want early access to our Boring Business shortlist?
👉 Get on the list here

🧠 Lead Story: The Deal Isn’t Done… Until It’s Done Right
Most buyers assume the hardest part of buying a business is the search.

It’s not.

It’s the 128 things between “We have a signed LOI” and “We just wired the funds.”

Because the real obstacles aren’t in your spreadsheet.

They’re in the landlord who won’t sign a new 10 year lease.
The seller who still doesn’t understand what working capital is.
The seller’s lawyer who takes 40 days to turn a purchase agreement.
The buyer who thinks you can close in 3 weeks.

And that’s all before you get to negotiations, diligence, legal mechanics, and closing logistics.

This week, we’re pulling back the curtain on the real, messy parts of getting a deal done. The parts that don’t fit neatly into a podcast or spreadsheet. But they’re the parts that matter most.

🔎 Real-World Friction We’ve Faced (And Solved)

Here’s what we actually deal with behind the scenes at SMB Law Group:

❌ LOIs That Skip the Hard Parts

You’ve probably seen it: a shiny LOI that forgets working capital adjustments, ignores deferred revenue, and glosses over work-in-progress.

We’ve cleaned up dozens like these. But it takes time, and it adds risk of busted deals.

Takeaway: If you don’t solve deal economics in the LOI, you’re renegotiating post-legal. That’s rarely clean.

🧑‍🏫 Educating Sellers and Brokers

We spend a lot of time doing what your lawyer shouldn’t have to do… explaining:

• Why a seller note has to be on standby

• What a working capital peg is

• Why a 2-page “bill of sale” is not an APA

Takeaway: Be ready to educate, early and often. Or loop us in early so we can do it for you.

🏦 SBA Landmines

SBA has tripped up more deals this year than anything else. Not because of bad intent, just a complex rulebook that shifts mid-deal.

• 10-year standby for equity-satisfying seller notes

• Seller rollovers now require a 2-year personal guarantee

• Foreign investors entirely excluded

Takeaway: Get the structure right at the LOI stage. Trying to shoehorn a deal into SBA eligibility later will kill it.

🏢 Landlord Delay = Deal Delay

We’ve seen landlords hold up $3M+ deals because they wouldn’t sign a simple lease extension on the same terms as the existing lease.

Worse, for SBA deals, the lease must be 10 years or the remainder of the loan term. That’s often a surprise… and not a good one.

Takeaway: Start the lease conversation early. Way earlier than you think.

📅 Stakeholder Herding

Most of your deals have 10+ parties:

• Buyer

• Seller

• Buyer counsel

• Seller counsel

• Lender

• Lender counsel

• Landlord

• Investors

• QoE provider

• Broker

• Your family!

Aligning timelines across all of them, especially when one goes dark, is one of the hardest parts.

Takeaway: Project management is the deal. Not an add-on.

🤯 Client Psychology

You’ve had clients go quiet for a week, then pop back up needing a rush close. You’ve had sellers push hard for a 30-day close, then delay reviewing an agreement for three weeks.

It’s normal. It’s human. But it’s also chaos.

Takeaway: Set expectations early, repeat often, and protect your team from deal whiplash.

🔍 Surprise Diligence Finds

A deal can look clean until it doesn’t. Just ask us about:

• Contractor misclassification

• Customer concentration

• Undisclosed IP ownership

These derail momentum fast — and often fall outside what buyers are trained to catch.

Takeaway: Good legal teams dig deep — not just “review the APA.”

🧠 Acquisition Insight: Deal-Making Is Not a Formula

No matter how sharp your model is, the deals that close are the ones that get worked.

They require:

• Patience

• Diplomacy

• Speed

• Grit

• The right team

There’s no plug-and-play. Every deal is its own beast.

SMB Law Group’s transaction checklist has 120+ items on it! It takes work and time.

But the buyers who win are the ones who respect that and plan accordingly.

💬 Real Talk: Not Every Client Is the Right Client

We’ve said no to:

• Clients offering $100K+ in fees because their needs would take away from other clients

• Clients who want daily access but won’t pay bills

• Clients with fast-moving transactions the week before Christmas

And guess what?

Those no’s turned into:

• New referrals from the lawyers we did refer to

• New respect from the clients themselves

• New bandwidth for the clients we should be serving

Takeaway: Saying no (strategically) builds a better firm. A better deal. A better result for the client.

🔄 Flywheel in Motion: Buy → Grow → Sell → Repeat

You’ve now seen multiple clients:

• Start as buy-side M&A clients

• Become FGC clients post-close

• Turn into sell-side clients 18 months later

• Then ask for fund formation

That’s the flywheel we’re building… one client, one trust-building moment at a time.

Takeaway: You don’t need 10,000 clients. You need 1,000 who come back again and again.

🔧 Behind the Scenes: What We’re Doing About It

We’re turning these hard lessons into systems:

✅ Internal and client-facing M&A SOPs
✅ Custom client questionnaires that surface red flags fast
✅ Weekly deal allocation syncs with our team
✅ AI-assisted issue list drafting and VDR summaries
✅ New pre-close landlord outreach SOP
✅ “Bad client filter” checklist for client fit

Because we don’t want to just survive these problems.

We want to solve them — for good.

📄 Need a Buyer-Friendly LOI Template?

If your LOI isn’t clean, structured, and SBA-compliant — you’re setting yourself up for pain down the line.

We’ve used our in-house LOI template to help close over $1B in M&A transactions.

It’s:

✅ Clean and professional
✅ Buyer-favorable
✅ SBA-compliant
✅ Reviewed by top lenders
✅ Easy to edit in Word or Google Docs

Here’s the kicker:

If you use our LOI template, we’ll finalize it for free when you retain us.

→ Just email info@smblaw.group and ask for the LOI template.

We’ll send it straight over — and help you negotiate it the right way.

Don’t start your deal on the wrong foot. Start here.

👀 Final Word

Buying a business is hard.

The closer you get to closing, the harder it gets.

But with the right team, the right plan, and the right expectations?

It’s absolutely worth it.

If you’re serious about doing this the right way…

📬 Email us: info@smblaw.group
We’ll show you how it really works.

⚠️ Disclaimer
This newsletter is for informational purposes only and does not constitute legal, financial, or investment advice. Certain examples are anonymized and modified for confidentiality and educational purposes. SMB Law Group is a strategic partner of select buyers and may benefit financially from engagements. Always consult a qualified professional before making legal decisions.

🧠 Lead Story: SBA 7(a) Rule Changes (Effective June 1, 2025)

How the new rules reshape seller financing, rollovers, and risk for every buyer.

We told you this was coming.
The SBA’s June 1 SOP changes are now live. And they’re… intense.

The updates affect:

• Seller notes

• Equity rollovers and partial buyouts

• Personal guarantees

• Foreign ownership

• Search fund economics

And if you don’t understand what’s changed, and how to navigate it, your deal could die before you even get into underwriting.

Let’s break it all down.

🔍 What Changed (And Why It Matters)

Here’s a short list of what’s new under the SBA SOP 50 10 8 (as of June 1, 2025):

1. Seller Notes Must Be on 10-Year Standby if Used as Equity

Previously: You could use a seller note as part of your 10% equity injection if it was on standby for 2 years.

Now: It must be on full standby for 10 years to qualify as equity.

✅ Why it matters:

This removes the ability of Buyers to satisfy their equity injection with a short-term seller note from the table. In order for a seller note to satisfy a Buyer’s equity injection, Sellers must be willing to finance 10%+ of the deal without payments for a full decade. That’s a much harder sell, and it could push some deals out of SBA eligibility.

Pro tip: Structure with real buyer equity. Keep seller notes as debt, not equity. Bring SMB Law in early to design around this.

2. Any Seller Who Retains Equity Must Personally Guarantee for 2 Years

This is big.

If a seller keeps even 1% ownership of the business post-close — they must personally guarantee the loan for at least two years.

✅ Why it matters:
Most sellers won’t agree to retain risk post-sale. This change will likely kill most partial buyout transactions with sellers. Buyers will need to plan for 100% buyouts…or have tough conversations early.

3. Any Deal Where Seller Will Retain Any Ownership Must Be Structured as a Partial Sale of equity

A traditional “equity rollover” structure is no longer permitted. Previously, if a Seller wanted to retain equity, the transaction could still be structured as an asset purchase and Seller would receive equity in the new buying entity.

Now, if a Seller intends to retain any equity after the Closing, the only permissible structure is an equity purchase where Buyer purchases less than 100% of the outstanding equity.

✅ Why it matters:
Asset transactions provide several significant benefits to Buyers, including protecting Buyers from pre-closing liabilities of the company as well as certain tax advantages related to depreciable assets. Now Buyers are required to use an equity acquisition structure and, while certain of the tax advantages of an asset sale can be accomplished, an equity purchase poses material risks to Buyers due to the company’s pre-closing liabilities.

4. Third-Party Investors Can’t Participate in Partial Buyout Structures Without Personally Guaranteeing the Loan

Read that again.

If you're structuring a deal where the Seller will retain some ownership (even 0.1%) after closing, every equity owner other than the Seller — even “silent” investors — must also personally guarantee the loan for the entire term. Note that, as discussed in point 2 above, the Seller is only required to guarantee the loan for two years.

✅ Why it matters:
This all but eliminates third-party investors in partial change of ownership transactions. Most investors won’t (and shouldn’t) personally guarantee a buyer’s loan. We expect a major drop in creative equity structures for partial buyout transactions going forward.

5. 100% of Equity Must Be Owned By U.S. Citizens or Green Card Holders

Foreign investors, even minority investors without management control, are prohibited from owning any equity in a business with an SBA loan unless they meet residency requirements.

✅ Why it matters:
If you have international LPs or backers, they cannot hold equity in SBA-financed deals. Full stop.

6. Search Fund Model Now Requires Real Economics for the Sponsor

This one came late and confused a lot of people.

The SBA wants to ensure that search fund sponsors have a legitimate, profit-driven reason for pursuing a deal… not just acting as a conduit for investor capital.

Expect scrutiny on:

• Equity splits

• Preferred vs. common

• Vesting structures

✅ Why it matters:
If you’re using a search fund structure, make sure you’ve got economic alignment. We’ve created a one-pager on SBA-compliant search fund models — email info@smblaw.group and we’ll send it over.

📈 Acquisition Insight: Play It Straight, Play It Smart

You can still do incredible deals under SBA.

But now more than ever, you’ve got to:

• Structure cleanly

• Educate sellers early

• Get legal involved before the LOI is signed

Sellers are confused. Brokers are scrambling. Even some lenders are still figuring it out.

Here’s how to lead with confidence.

💬 Buyer Diplomacy: Navigating the New Norm

Here’s the truth:

These updates are frustrating, but they’re not arbitrary.

They’re a reflection of the SBA’s attempt to curb defaults and force buyers into healthier, more stable structures.

That means:

• No games.

• No creativity for creativity’s sake.

• No last-minute “can we just…” proposals.

How to Communicate with Sellers and Brokers

• Be direct, but diplomatic.
  “This isn’t my rule. It’s the lender’s. Here’s how it affects your note.”

• Show them the upside.
  “You’ll get more cash at close. No risk. Just a clean exit.”

• Loop in SMB Law Group early.
  We’ll help clarify terms, provide sample structures, and get lender buy-in early.

🧠 How to Apply These Rules (Without Tanking Your Deal)

Here’s your game plan:

✅ Send us your LOI! We’ll review or redline it free if you’re using our template
✅ Ask for our Search Fund Economics One-Pager if you’re doing an investor-backed deal
✅ Educate your seller early with clean talking points
✅ Skip earnouts, rollovers, and equity gymnastics unless your lender signs off first
✅ Let us know if you need debt coaching… we’ve done this hundreds of times

🔐 Download: Our SBA-Ready LOI Template

If you’re using SBA financing, you need an LOI that supports the structure.

We’ve got you:

✅ SBA-compliant
✅ Buyer-favorable
✅ Reviewed by top SBA lenders
✅ Clean and editable

→ Email info@smblaw.group and we’ll send it.

If you use our template, we’ll finalize it for free when you retain us.

⚠️ SBA Loans Are Serious Debt — Use Them Wisely

SBA debt is powerful leverage, but if your business can’t support it, it’ll crush you.

Take this story from Acquiring Minds:

🎧 “I Bought a Construction Company, Then Faced an SBA Loan Default”
Justin Willess opens up about the pressure of debt and how one bad quarter nearly broke the business.
👉 https://acquiringminds.co/articles/justin-willess-construction-business

Use SBA when the margins are strong, leadership is ready, and you're prepared to own every outcome.

📚 Additional Reading on SBA Loan Risk

• Nerd Wallet: “What Happens If You Default on an SBA Loan?”

• Forbes: “What Happens If You Can’t Pay Your SBA Loan?”

• WR Law Group: “I Defaulted on My SBA Loan — Now What?”

🚨 Final Word

Don’t panic — plan.

SBA deals are still doable. Still powerful. Still life-changing.

But now more than ever, structure matters.

Let us help you do it right.

📬 info@smblaw.group

⚠️ Disclaimer

This newsletter is for informational purposes only and does not constitute legal, financial, or investment advice. We do not speak on behalf of the SBA, and the information herein is based on our interpretation of the June 1, 2025 SOP updates and lender guidance at the time of publication. Certain examples are anonymized or modified for educational purposes only. SMB Law Group is a strategic partner of certain lenders and may benefit financially from referrals or engagements. Always consult a qualified professional before making legal or financing decisions.

🧠 Lead Story: The Truth About SBA 7(a) Loans

You hear it all the time:

“Just get an SBA loan and buy a business.”

Sounds simple.
It’s not.

Especially lately, as the SBA has continued to adjust program terms.

If you’re serious about acquiring a small business, the SBA 7(a) loan program is likely your most powerful (and misunderstood) tool.

And if you don’t understand how it works… really works… you’re going to waste time, burn relationships, and potentially lose deals.

Let’s fix that.

It also comes with real risks, that need to be talked about.

Let’s do that.

💸 What Is the SBA 7(a) Program?

It’s a loan guarantee program.
The SBA isn’t giving you money. They’re backing your loan.

Here’s how it works:

• You go to a lender (typically a bank or non-bank SBA lender)

• The lender gives you up to $5M

• The SBA guarantees 75% to 85% of the loan

• You use it to buy a business

The SBA’s guarantee reduces the lender’s risk.
Which means they’re more likely to fund your deal — if you follow the rules.

🧾 What Are the Rules?

A lot of buyers mess this up.
Here are the core eligibility requirements:

• The business must be small (per SBA size standards)

• The buyer must be actively involved (no absentee owners)

• You must be a U.S. citizen or permanent resident

• You must personally guarantee the loan (more on this below!)

• You must put in a minimum 10% equity injection (read: down payment)

But it’s not just about meeting those conditions.
You also have to structure the deal correctly:

✅ Asset purchase (typically)
✅ Seller note on full standby (often)
✅ No earnouts, limited seller rollovers (historically)
✅ Compliant working capital treatment
✅ Specific collateral and lien requirements

We’ll dig into the June 1, 2025 rule changes next week, but for now — understand this:

Structure matters. A lot.

📣 Expert Insight from the Front Lines

Scott Oliver, a leading lender-side attorney at Lewis Kappes, put it bluntly this week:

“There are so many small business acquisitions falling apart right now because the buyers and their counsel don’t understand the SBA rules. The market’s gotten faster — but the bar for precision hasn’t lowered.”

He’s not wrong.

We’re seeing it on our side too:
Deals dragging. Lenders balking. Deadlines missed.

It’s not because buyers are reckless, it’s because they’re uninformed or try to do too much.

📉 What Happens If You Screw It Up?

Bad things.

• The lender might pull the loan post-approval

• The SBA might deny the guarantee

• You could default and still be personally liable

And in the worst cases?

• You burn your seller relationship

• You waste 6–9 months chasing a dead deal

• You end up back at square one with a bruised rep

🏦 What the Best SBA Lenders Do Differently

Not all lenders are created equal.
The best ones:

• Pre-underwrite early so you don’t waste time

• Understand deal-specific nuance (like working capital, deferred revenue, seller notes, etc.)

• Have real relationships with the SBA

• Tell you no fast if your deal won’t fly

We have favorites. If you’re in a deal and need a strong SBA partner, just reach out.

👀 What You Need to Do Before the LOI

Here’s what we recommend:

1. Get pre-qualified with an SBA lender

2. Understand what you can afford and what they’ll approve

3. Learn the key issues lenders care about:

   • Addbacks

   • Debt service coverage

   • Industry concentration

   • Ownership transition

   • Collateral shortfalls

4. Avoid structural terms that will kill your deal (more on this next week)

You wouldn’t put a house under contract without knowing if you can get a mortgage.
Same goes here.

📈 Acquisition Insight: SBA Loans Are Powerful — If You Respect the Process

Too many first-time buyers try to force their deal into an SBA box at the last minute.

That’s backwards.

Start with what SBA lenders will actually fund — and work from there.

That means:

• Understand your capital stack before diligence

• Engage a legal team that knows SBA nuance

• Structure your LOI to set the deal up for financing

• Don’t chase sellers who refuse to play ball on deal structure

⚠️ The Risks of Taking on SBA Debt

SBA financing can be an incredible lever — but it cuts both ways.

If you default, the SBA doesn't just “take the business.”
They come for your personal guarantee.

That means your house. Your savings. Your paycheck.

And in low-margin or volatile industries, even one bad quarter can create real pressure.

If you want a powerful (and sobering) example, listen to this recent Acquiring Minds episode featuring Justin Willess:

🎧 “I Bought a Construction Company, Then Faced an SBA Loan Default”

Justin shares how a construction business acquisition went sideways — and how the weight of SBA debt shaped every decision after close.

It's a must-listen if you're planning to sign on the dotted line without a margin of error.

📚 Additional Reading on SBA Loan Risk

1. Nerd Wallet: “What Happens If You Default on an SBA Loan?”
   A clear, borrower-friendly overview of the financial and legal consequences of SBA loan default.
   👉 https://www.nerdwallet.com/article/small-business/sba-loan-default-know-cant-pay

2. Forbes: “What Happens If You Can’t Pay Your SBA Loan?”
   This dives into how defaults are handled, what the government collects, and what recourse they may take.
   👉 https://www.forbes.com/advisor/business-loans/sba-loan-default/

🔍 Legal Spotlight: Our SBA-Ready LOI Template

We’ve helped close over $1B in M&A deals, many of them SBA-financed.

Our LOI template is:

✅ Clean and professional
✅ SBA-compliant
✅ Buyer-favorable
✅ Easy to edit

And if you use it, we’ll finalize it for free when you retain us.

→ Email info@smblaw.group to get a copy.

📦 Next Week: The 6/1 SBA SOP Rule Changes

We’re breaking down everything that changed in the new SOP — and why it matters:

• Seller equity rollovers

• Preferred equity injections

• Personal resource testing

• Standby requirement changes

It’s a big deal.

But don’t panic.
We’re decoding it all.

⚠️ Disclaimer

This newsletter is for informational purposes only and does not constitute legal, financial, or investment advice. Certain examples are anonymized and modified for educational purposes only. SMB Law Group is a strategic partner of certain lenders and may benefit financially from referrals.

⚠️ Disclaimer

This newsletter is for informational purposes only and does not constitute legal, financial, or investment advice. Certain examples are anonymized and modified for educational purposes only. SMB Law Group is a strategic partner of Uncommon Elite and may benefit financially from referrals.

🧠 Lead Story: The Operator Myth (and the Reality Behind It)

We’ve seen it again and again:

Buyers obsess over price, structure, diligence, financing — but forget to ask the most important question:

“Who’s actually going to run this business after I close?”

A few years ago, a client bought a towing company.

The seller had already stepped back, and there was a long-tenured operations lead running the show. Everyone — the seller, the staff, the buyer — agreed: this guy was the backbone of the business.

He even had the company’s logo tattooed on his body.

He was that committed.

Three months after closing… they had a falling out.
Tattoo and all, he walked away.

But here’s the part most people don’t expect:
The business was fine.

Why?

Because the buyer had stepped in early.
They weren’t just owning the business — they were ready to operate it.
Systems were already in motion. Communication was clear. Leadership gaps got filled — fast.

It wasn’t easy. But it didn’t collapse.

That experience changed how we think about post-close ownership.

📸 The Josh Schultz Gut Check

Ask yourself this:

If you bought a company like this… could you lead it?

This is Josh Schultz on Day 1 after his team acquired a foundry.

No suit. No pretense. Just a dude who stepped into operations immediately — and earned the trust of the team.

Now imagine:
You’re in front of 30 foundry workers.
The old owner is gone.
They’re all looking at you.

Can you lead?

If that makes you sweat, good.
This is the question too few buyers ask themselves before closing.

And not every business requires you to step into steel-toed boots.
But every business needs an operator.

Maybe it’s you.
Maybe it’s someone you hire.
Maybe it’s a partner or GM.

But it can’t be nobody.

🪞 Check Yourself: Are You Ready to Operate?

This isn’t about ego. It’s about fit.

Before you close, take inventory:

• Have you ever led a team outside your comfort zone?

• Can you give direction with confidence and follow-through?

• Are you ready to handle vendor negotiations, HR decisions, and team drama — all in the same week?

• Can you earn the respect of people who’ve been there longer than you?

• Do you know how to communicate clearly when people are scared?

I’m a lawyer.
I could probably buy and operate a professional services firm, maybe an accounting shop.
But a foundry? A manufacturing company? Not a chance.

And that’s okay.
It’s not about capability. It’s about alignment.

Some of you are built to lead industrial teams.
Some of you would thrive in e-comm, SaaS, or healthcare.

But don’t confuse ownership with readiness.
Know the difference before it costs you the company.

📈 Acquisition Insight: Don’t Wing the Ops Role

If you’re not going to operate yourself, then post-close planning should start with one question:

“Who’s my Day 1 operator?”

Because hope is not a handoff strategy.

And that’s why we’re sharing this:

🔍 Operator Spotlight: Uncommon Elite

All your leadership problems solved in one hire.

Uncommon Elite places former special operators into hands-on leadership roles in real-world businesses — think GMs, COOs, and operators for founder-led, blue-collar, or PE-backed companies.

They’re founded by a former 160th SOAR pilot (translation: elite helicopter command), and their placements are:

✅ Accountable
✅ Autonomous
✅ Mission-oriented
✅ Proven in pressure
✅ Ready to step into chaos and lead

They’re not MBA tourists.
They’re trained to execute when things get real — and lead when others stall.

If you’re looking for an operator who can stabilize your business and earn the team’s trust immediately — this is where we’d start.

→ Learn more about Uncommon Elite

📌 Disclaimer: Kevin and I have a formal equity partnership with Uncommon Elite, and both Kevin Henderson and I are proud to support their mission.

👀 Call to Action: Don’t Buy Without a Plan to Lead

Buying a business is one thing.

Running it?
That’s where the real challenge begins.

Figure out your lane.
Know your blind spots.
And bring the right people into the room before the old owner walks out of it.

📦 Need a Buyer-Friendly LOI Template?

Before you can even think about post-close operations, you’ve got to get the deal under control at the LOI stage.

We’ve built our LOI template based on 3 years and over $1 billion in closed deals.

✅ Proven structure
✅ Buyer-favorable terms
✅ Clean language and real-world protections

Bonus:
If you use our LOI template, we’ll finalize it for free.
Just email info@smblaw.group to get started.

It’s the first system you’ll need — and the one most buyers get wrong.
Don’t be most buyers.

The Post-Close Operator Audit

How do you know if your operator is actually leading — or just showing up?

We use this exact framework to evaluate post-close leadership on real deals.

You’ll score yourself (or your ops lead) on things like:

• ✅ Clarity of command

• ✅ Operational control

• ✅ Bias for action

• ✅ Team impact and trust

• ✅ Composure under pressure

• ✅ Systems thinking and situational awareness

Total score: 0–45.
The insights? Priceless.

🧠 If you score under 30, you need support.
38+? You’ve got a top-tier operator on your hands.

This tool is designed for post-close buyers, operator hires, and owners thinking about leveling up execution.

📄 Paid subscribers can download the full self-assessment PDF below

👉 Operator Audit Leadership & Execution Tool

Operator Audit Leadership & Execution Self Assessment Tool

132KB ∙ PDF file

Download

Download

Let’s be clear upfront:
The SBA’s newly issued guidance takes aim at search fund deal structures. But while it claims to address “emerging practices,” what it actually does is mischaracterize the way most search funds work and in the process, threatens to invalidate well-structured, compliant transactions.

If you're an entrepreneur raising funds to acquire a business, or advising someone who is, this rule change affects you. In fact, it may determine whether your deal gets financed at all.

📜 What Changed: SBA’s New Rule on Search Funds

The update comes through SBA’s Standard Operating Procedure (SOP) 50 10 7.1, which governs eligibility for 7(a) loans — the primary debt instrument used by acquisition entrepreneurs.

Here is the text of the new rule:

It contains two key changes relevant to search funds:

1. Control Provisions for Non-Guarantor Investors

“Businesses that have entered into an agreement for control (including a side agreement) that gives a non-guarantor owner/investor control of the business are ineligible.”
(Section A, Chapter 1, Paragraph E.3, Page 20)

In other words, if any investor who is not personally guaranteeing the loan is deemed to have control of the business, via side agreement or otherwise, the loan is disqualified.

2. Equity Repayment Characterized as Debt

“An equity investment is not subject to an agreement to repay equity or make distributions to recover an investor’s investment prior to release of the guarantee.”
(Section B, Chapter 2, Paragraph V, Page 128)

If your deal includes equity that must be repaid, or includes mandatory distributions, before the SBA guarantee is released, the SBA will treat it as debt, not equity.
And debt that’s not part of the approved loan package? Ineligible.

These two concepts… “control” by investors and “repayment” of equity… are now critical to eligibility.

🧠 How It Works in Practice: The Reality of Search Fund Structuring

Here’s what the SBA got wrong.

✔️ Yes, Search Funds Are Real

Search funds are legitimate, structured vehicles. An entrepreneur (the “searcher”) raises capital to fund the acquisition of a business they’ll actively operate. The capital may come from a small group of investors or be entirely self-funded.

That definition, which the SBA includes in its guidance, is factually accurate.

✔️ Yes, Investors Often Take <20%

This is a common and compliant practice. Investors take less than 20% equity precisely to avoid triggering the SBA’s personal guarantee requirement. The bank knows this. The borrower discloses it. There is no deception.

❌ No, Investors Don’t Have “Side Agreements” for Control

This is where the SBA’s logic collapses.

We do not recommend side agreements. Ever.

In fact, we explicitly advise against them. Why? Because any undisclosed governance arrangement tied to a federally-backed loan opens the door to SBA fraud, wire fraud, and serious criminal exposure.

All deal terms must be disclosed to the bank and included in the governing documents… the operating agreement, stockholders agreement, or otherwise.

If there’s a side letter giving an investor de facto control? That’s not a gray area, it’s a red flag. And it’s not common practice.

🧩 What the SBA Might Be Referring To: Minority Investor Protections

In most deals, especially those with professional investors, it’s common to include basic minority protections… i.e., provisions that allow investors to prevent fundamental harm to their investment. These might include:

• A veto on amending governing documents

• Restrictions on unilaterally issuing new equity

• Approval rights on major asset sales or debt incurrence

• Protection from dilution without consent

These are not control rights.

They are protections, and they do not override the fact that the entrepreneur remains the sole manager of the business.

In nearly all search fund deals, the searcher retains management authority and decision-making power. The investors are passengers, not pilots. In fact, they don’t want control!

Note that upmarket investors sometimes think search investors are crazy for this, but those are the facts, nonetheless.

💸 The Return-of-Investment Clause: A Misunderstood Threat

The SBA’s second assertion ‘that investors must not have any agreement to recover their equity before the guarantee is released’ is vague and potentially damaging.

Let’s unpack the possible meanings:

✅ If “require” means a put right or redemption (forced buyback by the company):

This is already discouraged by most counsel, including ours. These clauses pose liquidity risks. If an investor can force the business to buy out their equity in five years, that creates a future cash obligation that might not be manageable.

We routinely advise searchers to reject these provisions or convert them to optional redemptions or long-term promissory notes.

❌ But if “require” is interpreted broadly, as in any expectation of repayment, we’re in trouble.

Many deals include preferred equity with return mechanics:

• Preferred returns

• Tag-along rights on exit

If those are now seen as debt, not equity, then the deal is disqualified.
Period.

This interpretation would create a chilling effect, especially for capital providers who’ve operated well within the rules.

⚖️ Implications: Who This Hurts Most

This policy shift doesn’t stop abuse. It could (if wrongly interpreted) discourage legitimate deals.

• Self-funded searchers may be unaffected.

• But entrepreneurs raising outside capital now face uncertainty about what’s allowed.

• Investors will demand safer structures or walk away.

• Lenders may overcorrect and reject deals even loosely resembling a search fund.

The ambiguity is the danger. The SBA hasn’t drawn bright lines, they’ve sketched vague boundaries, and everyone is left guessing what will trigger disqualification.

🛡️ So What Should You Do?

If you're raising funds to acquire a business using SBA financing, this is not the time to get clever or take shortcuts.

✅ Keep it simple!!
✅ Disclose everything.
✅ Avoid any side agreements not included in your deal docs.
✅ Be extremely cautious with preferred equity or redemption features.
✅ Have a qualified attorney who actually understands this space structure your deal.

Because now more than ever, you need a great lawyer — one who can draft investor terms that protect you, comply with SBA guidance, and actually close.

If you're not sure whether your deal fits within the new rules, or how to clean up a draft that doesn’t, don’t guess.

🎓 Want More?

This week in the Business Buying Masterclass, I’ll be sharing deal templates, redline examples, and a full teardown of how to navigate investor protections under this rule.

If you're raising money, buying a business, or just want to understand how this space is evolving, now’s the time to level up.

Disclaimer:
This newsletter is for informational purposes only and does not constitute legal, financial, or tax advice. I am not your lawyer, and no attorney-client relationship is formed by reading this content. Always consult your own advisors before acting on anything you read.

🧠 Lead Story: Closing Isn’t the Goal — Control Is

The business isn’t really yours when the wire clears.

It becomes yours when:

• The assets are fully transferred

• The employees trust you

• The customers stay and keep paying

• The vendors keep shipping

• And the systems still work on Monday

That doesn’t happen by accident.
That’s called post-close execution — and it’s where most first-time owners either stabilize… or spiral.

Real Lessons from Real Deals

Recently, we supported multiple buyers with clean diligence and smooth closings — yet still faced challenges that only operator readiness can solve.

In one deal, a customer continued making payments to the seller’s old ACH account post-close.
The buyer didn’t catch it in time — and now they’re chasing a seller who’s in no rush to return the funds.

In another deal, the seller had quietly overridden the payroll system for years.
Employees received extra PTO each December, but nothing was documented. No handbook. No policy. Just a verbal tradition.

Post-close, an employee flagged her balance as “wrong,” and tensions rose quickly.
With help from his advisors, the buyer issued a clear internal memo, formalized the PTO policy, and rolled forward time fairly.
Crisis avoided. Morale preserved. And the buyer looked like a pro — not a panicked rookie with a legal pad.

In a third deal, a seller contracted for post-close transition support still held all admin control over the company’s IT infrastructure months after closing.
They refused to hand over full access.
The buyer had to escalate through legal channels to enforce handover of basic operational systems like email, accounting, and CRM.

None of these were missed in diligence.
They weren’t oversights.
They were reminders:

Diligence gets you to closing.
But systems, support, and operator readiness carry you through what comes next.

The 0-to-1 Gap

If you’ve never built something from scratch — never gone “0 to 1” — post-close can feel like being handed the keys to a moving train… with no map and no brakes.

That doesn’t mean don’t buy.
It means don’t do it alone.

• Get a coach

• Join a vetted operator peer group

• Find a mentor who’s already scaled and stabilized

• Bring in smart money that adds more than capital

• Build an advisory board before you need it

Bring experience into the room — before you’re the only one in it.

When we started building SMB Law Group, we hired a business coach on day one.

He told us:
“Do X, Y, and Z.”

We listened.
But the why behind those things? That didn’t land until two years in.

And once it did — once the systems clicked, the strategy locked, and the team aligned —
Execution got 10x sharper.

That kind of clarity only comes from experience.
From learning what matters the hard way.
From building.

So if you’re skipping the early-stage grind by buying instead of building...
Make sure someone on your team has already walked that path.

Because buyers don’t just need capital.
They need calibration — from people who’ve been through the fog, and made it out with systems, strategy, and sanity intact.

If you don’t have that support yet — go get it.
Before you’re two months in… fixing a system you didn’t know was broken.

📈 Acquisition Insight: Your First 14 Days as the Owner

If you're two weeks post-close and still waiting for things to "settle," you're already behind.

By Day 14, you should be able to say — confidently — that:

✅ Employees know who you are, understand what’s changing (and what’s not), and feel like someone is in charge. You’ve sent a Day 1 email, held at least one live call, and made space for their questions.

✅ Top customers have been personally contacted. They’ve heard your name. They know continuity is the plan. They feel like they’re in steady hands.

✅ All vendor relationships are mapped, logins are secured, and ACHs are tied to the right accounts. No more payments hitting the seller’s inbox or going unpaid because of access issues.

✅ Your financial controls are live. You’ve defined who can move money, approve payments, run payroll, and sign contracts. No ambiguity. No overlaps. No holes.

✅ You’ve started tracking what matters. Whether it’s churn risk, vendor friction, or employee morale, you’ve built a system to flag red alerts before they become fires.

This isn’t about perfection.
It’s about control.

If you’re still reacting to issues by the end of Week 2, you're operating on hope.
If you’re preventing them — you’re starting to think like a real owner.

🔧 Behind the Scenes at SMB: Real Post-Close Support

We’re not just deal counsel — we help clients protect their investment after the deal is done.

Here’s how we do it:

✅ Post-Closing Toolkit (Client-Only)
Included with every M&A engagement, this resource helps buyers:

• Review and update customer and supplier agreements

• Clean up entity structure

• Identify and resolve loose ends in contracts, compliance, and documentation

• Ensure employee classifications, offer letters, and contractor terms are legally sound

✅ Free Fractional General Counsel (FGC) Support
Our clients receive free post-close legal access to ensure they’ve got someone in their corner watching their back!

This isn’t fluff.
It’s what closes the loop between acquisition and operational control.

🧾 Client Close Highlight: Scalepath

Real deal. Real buyer. Real traction.

A few weeks ago, one of our clients closed a highly strategic acquisition — one that many of you in this community will recognize:

🎉 Congrats to Rand Larsen, who just acquired Scalepath, a vetted peer group for small business owners.

Rand originally built a cohort of 40+ acquisition entrepreneurs who’d already closed deals. Then he acquired a majority of Michael Girdley’s SMB community and merged the two.

Scalepath now supports 90+ business owners post-close — and the insights being shared inside are the kind you’ll never find in a broker memo.

If you’re under LOI, Rand will introduce you to someone who has closed in your industry. That means real due diligence insight from someone who’s lived it.

📩 Reach out directly: Rand@joinscalepath.com
Client mentioned with permission.

🔎 Market Spotlight: Why We’re Watching Dealonomy

If you haven’t seen Dealonomy yet, take a look.

It’s a new platform for discovering quality, vetted SMB deals — founded by our friend Clint Fiore, formerly of Bison Business, one of the top M&A shops in the country.

Clint and his team are building what feels like the “easy button” for business buyers:

• Clean, SBA-lendable deals

• Motivated sellers with realistic expectations

• Professional advisors on both sides

• An all-in-one system for NDA → offer → due diligence → close

We’ve reviewed the backend, and it’s real:
🔹 20+ deals already live
🔹 Most deals in the $500K–$1.5M SDE range
🔹 Real documentation and process
🔹 More added every week

And SMB Law Group is now proud to be a preferred legal partner on the platform — helping buyers navigate the LOI and legal process with confidence.

The best part? It’s free to join.
But serious buyers can grab a 30-day trial of the Premium Plan, which gets you early access to every new deal and other high-leverage perks.

If you’re tired of sifting through junk on BizBuySell, and want a clearer, faster path to good businesses with serious sellers…
📎 Go check out Dealonomy

📦 Need a Buyer-Friendly LOI Template?

We’ve built our LOI template on 3 years and $1 billion of closed deals.

✅ Proven language
✅ Buyer-friendly terms
✅ Ready to customize

Bonus:
Use our template and we’ll finalize your LOI for free.
Just email info@smblaw.group to get started.

⚠️ Disclaimer

This newsletter is for informational purposes only and does not constitute legal, financial, or investment advice. Certain examples are anonymized and modified for educational purposes only and do not represent specific client communications or missed diligence findings.

🧠 Lead Story: Why Process Matters More Than Price

Most first-time buyers jump straight to pricing.

“What multiple should I pay?”
“Can I get it for 3x or less?”
“Is 4x EBITDA too much?”

Wrong focus.

Pricing means nothing if you don’t understand how the process actually works.

And trust us — the process isn’t obvious.

Unlike real estate, there’s no agent walking you through each step.
No escrow company coordinating the paperwork.
No standard timelines or templates.

You’re building the process as you go…
Unless you already know the map.

So today, we’re breaking down the 10 stages every serious buyer must master — from search to close to transition.

📈 Acquisition Insight: The 10-Stage Roadmap

1. Clarify Your Buy Box

What are you looking for?

• Industry

• Geography

• Revenue range

• Profitability threshold

• Owner involvement limits

If you can’t describe it in one sentence, you’re not ready to search.

2. Source Deals

Find deal flow through:

• Brokers (BizBuySell, Axial)

• Direct outreach (email, calls, LinkedIn)

• Your existing network (CPAs, lawyers, bankers)

3. Initial Screening

Quickly filter:

• Revenue/profit alignment

• Owner dependence

• Customer concentration

• Deal size fit

4. Seller Intro Call

Start with:

• Why they’re selling

• What they care about post-sale

• What they’re proud of (listen carefully)

5. Review Key Info

Request:

• Basic financials

• Customer and employee overview

• High-level operations summary

6. Negotiate & Draft the LOI

You don’t need to “be a lawyer” to send an LOI.
You just need to get clear on:

• Price

• Deal structure

• Exclusivity

But you need the right template — and the right language — to lock in a fair deal.

📦 Free LOI Templates + Bonus Offer

We’ve prepared battle-tested LOI templates based on 3 years and $1 billion+ in closed deals.

✅ Buyer-favorable terms
✅ Clean structure
✅ Industry-standard language

Bonus:
Use our template and we’ll finalize your LOI for free.
Just email asayat@smblaw.group to get started.

7. Due Diligence

Verify:

• Financials (taxes, customer records)

• Legal compliance (contracts, liabilities)

• Operational health (employees, systems)

8. Financing

Secure:

• SBA loan or conventional financing

• Seller financing or equity partners

9. Legal Docs & Closing

Finalize:

• Purchase agreements

• Reps & warranties

• Payment logistics

10. Post-Close Transition

Lead:

• Employee introductions

• Vendor/customer communication

• Systems and operations handoff

🔧 Behind the Scenes at SMB Center

We’ve built:

• Buyer readiness checklists

• Due diligence playbooks

• Post-close integration frameworks

We’ll be rolling these out soon to subscribers.

👀 Call to Action: Define Your Buy Box Today

Start your acquisition journey now.
Write down:

• Industry

• Geography

• Revenue range

• Profit target

• What type of business are you uniquely suited to run?

Need help?
Email us or reply to this newsletter — we’ll point you to the right resource.

And remember:

📦 Need a Buyer-Friendly LOI Template?

We’ve built our LOI template on 3 years and $1 billion of closed deals.

✅ Proven language
✅ Buyer-friendly terms
✅ Ready to customize

Bonus:
Use our template and we’ll finalize your LOI for free.
Just email info@smblaw.group to get started.

⚠️ Disclaimer:

This newsletter is for informational purposes only and does not constitute legal, financial, or investment advice. Please consult with your professional advisors before making any business decisions.

Entrepreneurship from scratch sounds heroic.
The idea. The grind. The garage startup.
But the statistics? They’re brutal.

❌ 20% of startups fail in the first year
❌ 90% don’t make it past five
❌ Only a tiny fraction ever generate meaningful income for their founders

The hard truth? Most founders are broke. Tired. And stuck.

Now flip the model.

When you buy a business — with existing cash flow, customers, and systems — you skip years of unprofitable trial-and-error.
You step into a functioning company on Day 1.
You’re solving problems, not proving your concept.

That’s why entrepreneurship through acquisition (ETA) is the smarter, faster, more resilient path.

We’ve made it our mission to teach it.
This newsletter is where we pull back the curtain.

Welcome to the Business Buying Masterclass.
Here’s how the pros play the game.

📈 Acquisition Insight: The Power of Existing Infrastructure

Subtitle: Why a functional foundation changes everything

When you acquire a business, you’re buying more than a P&L. You’re buying:

✅ A proven product or service
✅ A trained team with real context
✅ Systems and vendors already in motion
✅ Customers who already pay — and trust

Most founders spend 3–5 years trying to build this from scratch.

A buyer steps in, fixes what’s broken, and scales what works.

That’s the edge.
You’re buying time. Momentum. Survivability.

And in many cases, that business can pay YOU a salary from the jump.

🔍 Masterclass Tactic: Our Real Acquisition Criteria

Subtitle: What we actually look for when buying

There’s no one-size-fits-all in acquisitions — but we do have a playbook.

At SMB Center, we look for businesses that check four boxes:

📊 Consistent Cash Flow
If it doesn’t throw off profit, it’s a hobby — not a business.

🧠 Industries We Understand
We don’t chase trends. We stick to our zone of genius.

📈 Growth Potential
We want to see what’s working — and where we can build on it.

👋 Owners Ready to Transition
If they want out, and we want in, that’s where alignment lives.

Bonus points for:

• Owner fatigue

• Operational gaps we can fill

• Undermarketed products

• Recurring revenue

Every deal we look at runs through this lens.

This doesn’t guarantee success. But it stacks the deck in your favor.

🧠 Behind the Scenes: Our ETA Operating Model

Subtitle: How we structure teams post-acquisition for immediate lift

We don't just buy companies. We operate them.

Here’s our three-phase integration model:

🔹 Phase 1 – Stabilize

• Audit systems

• Secure vendor relationships

• Retain key staff

• Lock in customer satisfaction

🔹 Phase 2 – Optimize

• Simplify workflows

• Cut waste

• Build reporting dashboards

• Re-activate dormant revenue lines

🔹 Phase 3 – Grow

• Launch new marketing

• Expand geography or verticals

• Layer in cross-sells

• Consider bolt-on acquisitions

ETA is a long game — but we make the first 90 days count.

💡 Buying Tip of the Week

Title: Don’t Chase Deals. Chase Clarity.

One of the biggest traps for new buyers? Looking at every deal that hits your inbox.

You don’t need 100 teasers.
You need 10 good ones.
Screen faster. Filter harder.

Try this simple rule:
→ If you wouldn’t be excited to run it for 5 years, don’t even open the CIM.

👀 Call to Action: Ready to Explore Acquisition?

Subtitle: Start smarter. Buy instead of build.

If you’re thinking about jumping into entrepreneurship through acquisition, start with this:

1. Pick an industry you’d enjoy operating in

2. Set your financial target (how much cash flow do you need?)

3. Search listings on:

   • BizBuySell

   • LoopNet

   • Axial (for larger deals)

4. Build your outreach funnel (we’ll show you how in future issues)

📬 Want to see how we filter 100+ deals/week?
We’ll share our due diligence scorecard — free for subscribers next week.

→ Subscribe Here

🎁 Share & Unlock Bonus Tools

Refer 3 friends to this newsletter and get:

✅ Our Due Diligence Checklist
✅ 3 LOI templates we’ve used to close real deals
✅ “12 Questions to Ask Every Seller” Cheat Sheet

Send me a message and let me know!

⚠️ Disclaimer

This newsletter is for educational purposes only and does not constitute legal, financial, or investment advice. Always consult with your advisors before making any business decisions.

The Business Buying Masterclass is a reader-supported publication. To support the mission, consider becoming a free or paid subscriber.

Hey Business Buying Masterclass and SMB Center Subscribers,

I hope you're all doing well! Over the weekend, I shared a quick guide on forgivable notes on X.com, and I wanted to make sure you had access to it. This guide covers the essentials of contingent promissory notes, providing a clear and concise overview.

👉 Access the guide here: Forgivable Notes Quick Guide

We'll be diving deeper into this topic in the coming weeks, so stay tuned for more detailed content and discussions.

In the meantime, make sure to check out the brand new SMB Center, a free resource designed for business buyers and operators:

👉 Explore the SMB Center: LOI Blueprint Course

The SMB Center aggregates valuable content from SMB Twitter and other sources to provide everything you need to succeed in small business. Our goal is to offer comprehensive resources, including:

- Articles

- Calculators

- Expert recommendations

- Tools

- Models

- Templates

We aim to support your journey in the SMB space by offering these resources completely free of charge.

Best regards,

Eric & Kevin

Disclaimers

Now for a few required disclaimers. Sorry in advance!

1. This course is being presented strictly for educational and informational purposes and not for the purpose of marketing any legal services or seeking legal employment and is not motivated by pecuniary gain.

2. The opinions stated in this course from the authors represent the opinions of such individual authors and not the opinions of any other person or organization.

3. Nothing contained in this course or otherwise from the authors hereof is to be interpreted as legal, financial, tax, investment, and/or any other form of advice. Please consult your own legal, financial, tax, investment, and/or other advisors.

4. The authors are not your lawyers, and no information provided in the course of this class or otherwise has the effect of forming an attorney-client relationship between you and the authors. In short, get your own lawyer!

5. This course is being presented by The SMB Center LLC and has no affiliation or relationship with SMB Law Group LLP.

About the Authors

Eric & Kevin, the authors of this masterclass, have worked for some of the most elite law firms in the world.

During their time in BigLaw, they regularly worked on transactions in the hundreds of millions to billion-dollar-plus range for some of the most recognizable companies in the world and have extensive experience with M&A.

The authors have since begun investing in select SMB acquisitions and have co-founded an SMB-focused law firm where they’ve collectively worked on billions of dollars in SMB-focused M&A.

Mundane Millionaires: Full Episode with Elliott Holland

Listen to or watch the full episode today and please leave us a five-star review on your favorite podcasting platform!

Listen to Mundane Millionaries Now!

In today’s session, we dive into the critical topic of financial due diligence, a cornerstone in the acquisition process.

To enrich our discussion, we’ll integrate insights from industry experts Chris Williamson of Cayne Crossing and Elliott Holland of Guardian Due Diligence.

Thank you for tuning in to the 11th session of this Business Buying Masterclass.

Let’s get started!

The Business Buying Masterclass is now part of The SMB Center! 🎉The SMB Center is your go-to destination for essential resources, practical tools, and expert insights tailored to small and medium-sized business entrepreneurs like you. This includes hundreds of articles on business buying (Entrepreneurship Through Acquisition) and valuable tools like our Leveraged Buyout Model and LOI Template — all for FREE.

Check It Out Now!

Introduction

Congratulations on making it through the toughest part: getting the seller and broker on board and finalizing your Letter of Intent (LOI).

Now that you're under LOI, the seller is willing to lift the proverbial ‘hood’ of the business and provide access to detailed financial information.

This is your first look at the data underlying the information provided in the Confidential Information Memorandum (CIM).

It’s a crucial phase where the rubber meets the road, offering a real glimpse into the business’s actual performance and financial health.

In this session, our goal is to help you navigate the post-LOI deal roadmap, focusing on the essential steps and best practices for conducting financial due diligence.

We will explore the nuances of Quality of Earnings (QofE) reports, share expert advice on identifying red flags, and provide actionable tips to ensure you’re making a well-informed decision.

Guest Contributors

Elliott Holland is the founder and managing director of Guardian Due Diligence, a firm specializing in Quality of Earnings (QofE) for small and medium-sized business (SMB) transactions. With a rich background in private equity and a Harvard MBA, Elliott brings over 20 years of experience in evaluating and managing acquisitions. Guardian Due Diligence has supported numerous entrepreneurs and investors in making informed decisions by providing comprehensive financial due diligence and QofE reports. Elliott is known for his deep understanding of SMB dynamics and his commitment to ensuring clients avoid costly mistakes and uncover potential fraud in their transactions.

Chris Williamson is a founding partner of Cayne Crossing, a boutique consulting firm focused exclusively on financial due diligence and Quality of Earnings (QofE) for small and medium-sized businesses (SMBs). With over 20 years of experience and a background in Big Four accounting, Chris has led over 1,000 transactions, providing clients with the insights needed to make informed decisions. Cayne Crossing is renowned for its hands-on approach and deep understanding of the unique challenges in the SMB market. Chris is passionate about entrepreneurship and leverages his extensive experience to help clients navigate the complexities of financial due diligence, ensuring they uncover the true financial health of potential acquisitions.

Financial Due Diligence: The First Look Under the Hood

Financial due diligence is the process of verifying the financial information provided by the seller.

It aims to confirm that the business's reported earnings, expenses, and assets are accurate and provide a true reflection of its financial health.

This process typically includes a thorough review of financial statements, tax returns, customer contracts, and other relevant documents.

Chris Williamson of Cayne Crossing emphasizes the importance of this step:

"Financial statement quality across SMBs is the wild wild west. There is no concept of Generally Accepted Accounting Principles (GAAP) in this end of the world. This means the baseline of your valuation, EBITDA/SDE, may be totally incorrect and at the mercy of the seller’s (often) biased interpretation of their financial picture.”

The Role of a Quality of Earnings (QofE) Report

A Quality of Earnings (QofE) report is a comprehensive financial assessment designed to bridge the gap between the business's financial statements and reality.

Here is a clip from Mundane Millionaires of Elliott explaining what a QofE is:

Chris further explains that: "A QofE focuses on illustrating the true or 'normalized' state of historical EBITDA and how it bridges to free cash flow. In short, what you receive from a seller or their broker is often an (unintentionally) misconstrued view of the reality of the business you will be taking over."

Elliott Holland from Guardian Due Diligence adds, "The financial part of a quality of earnings is somewhat similar deal to deal. The data inputs vary. The work you have to do to get them into a standard format varies. But the output is pretty consistent. If you look at a hundred reputable firms' quality of earnings, we'll structure stuff differently, different levels of depth in the analysis, but they look similar."

Key Components of a QofE Report

1. Proof of Cash

One of the foundational elements of a QofE report is the proof of cash.

This step ensures that the financial statements align with actual cash flow.

Chris notes, "Proof of cash is step one. Do the financial statements actually agree with the cash that came in and out of the bank accounts? The answer almost always is yes, but we’ve seen times when it doesn’t. This important check helps gauge the operating cash flow of the business."

2. EBITDA Adjustments (Add Backs)

Understanding and validating EBITDA adjustments is crucial. "What is the normalized revenue and EBITDA of the business? After taking into account everything you’ve learned about the seller’s financial statements, this is where it all comes together in a summary format to tell you what it means," says Chris.

3. Working Capital Analysis

Another critical aspect is the working capital analysis.

Chris explains, "Determine the working capital needs of the business and the resulting impacts in relation to how you have structured working capital in your LOI. If you are receiving a normalized level of working capital at closing, this will help you define the peg."

Common Pitfalls and How to Avoid Them

Elliott shares some of the common pitfalls he has encountered in his practice: "I've seen deals where the seller deposited a million dollars into the bank account and tried to call it revenue with no invoices. Another time, they added every darn thing as an EBITDA adjustment. These fraudulent activities can severely impact the valuation and viability of the business."

Here is a Mundane Millionaires clip where Elliott expands on the risks involved:

To avoid such pitfalls, it’s essential to:

• Hire a reputable QofE provider: Choose a provider with experience in SMB transactions and a strong track record.

• Stay objective: Remember that you are no longer an objective party once you are emotionally invested in the deal.

• Thoroughly vet the financials: Ensure all financial statements, bank statements, and tax returns are scrutinized for inconsistencies.

Expert Advice: Red Flags to Watch For

According to Elliott, some red flags to watch for during financial due diligence include:

• Significant discrepancies between bank statements and financial statements

• Unusually high or low working capital requirements

• Inconsistent revenue recognition practices

• Large, unexplained adjustments to EBITDA

Conclusion

Financial due diligence is a critical step in the acquisition process.

By thoroughly vetting the business’s financials and leveraging the expertise of seasoned QofE providers, you can uncover potential issues, renegotiate terms, and ensure you are making a sound investment.

Thank you for joining us for this session of the Business Buying Masterclass.

We hope these insights and expert advice help you navigate your next acquisition with confidence.

Now, let’s dive into a recent episode of the Mundane Millionaires podcast featuring Elliott Holland, where he shares more about his experiences and expertise in financial due diligence.

Mundane Millionaires: Full Episode with Elliott Holland

Listen to or watch the full episode today and please leave us a five-star review on your favorite podcasting platform!

Listen to Mundane Millionaires Now!

Disclaimers

Now for a few required disclaimers. Sorry in advance!

1. This course is being presented strictly for educational and informational purposes and not for the purpose of marketing any legal services or seeking legal employment and is not motivated by pecuniary gain.

2. The opinions stated in this course from the authors represent the opinions of such individual authors and not the opinions of any other person or organization.

3. Nothing contained in this course or otherwise from the authors hereof is to be interpreted as legal, financial, tax, investment, and/or any other form of advice. Please consult your own legal, financial, tax, investment, and/or other advisors.

4. The authors are not your lawyers, and no information provided in the course of this class or otherwise has the effect of forming an attorney-client relationship between you and the authors. In short, get your own lawyer!

5. This course is being presented by The SMB Center LLC and has no affiliation or relationship with SMB Law Group LLP.

About the Authors

Eric & Kevin, the authors of this masterclass, have worked for some of the most elite law firms in the world.

During their time in BigLaw, they regularly worked on transactions in the hundreds of millions to billion-dollar-plus range for some of the most recognizable companies in the world and have extensive experience with M&A.

The authors have since begun investing in select SMB acquisitions and have co-founded an SMB-focused law firm where they’ve collectively worked on billions of dollars in SMB-focused M&A.

Introduction

Congratulations on making it through the toughest part: getting the seller and broker on board and finalizing your Letter of Intent (LOI).

Now, where do you go from here?

In today's session, our goal is to help you navigate the post-LOI deal roadmap.

Before we dive in, remember that no two transactions are the same.

Sellers and brokers may have strong opinions about timeframes, due diligence, and the overall deal process.

While it's important to be diplomatic, remember that when you're planning to invest millions of dollars, you don't need to walk on eggshells.

Always protect yourself against those dreaded busted deal fees!

Most transactions follow a similar cadence. Here are the general steps:

1. Conducting Financial Due Diligence (and Renegotiating Terms!)

2. Business Due Diligence

3. Securing Your Financing (SBA or Conventional)

4. Negotiating with Potential Investors (From Term Sheet to Subscription)

5. Legal Due Diligence

6. Negotiating Agreements

7. Closing

8. Post-Closing Considerations

As you navigate each step, it’s crucial to see the big picture and keep track of what still needs to be done.

Thank you for tuning in to the 10th session of this Business Buying Masterclass.

Let’s get started!

The Business Buying Masterclass is now part of The SMB Center! 🎉The SMB Center is your go-to destination for essential resources, practical tools, and expert insights tailored to small and medium-sized business entrepreneurs like you. This includes hundreds of articles on business buying (Entrepreneurship Through Acquisition) and valuable tools like our Leveraged Buyout Model and LOI Template — all for FREE.

Check It Out

The Change in Leverage Positions

Once you're under an LOI with exclusivity, typically for 60 to 90 days (always ask for 90!), the leverage shifts in your favor as the buyer.

The seller is forced to remove the business from the market, granting you a unique position of influence—they are desperate to close the deal and you’re the only game in town!

This exclusivity period is crucial as it allows you to thoroughly evaluate the business without the pressure of competing offers.

Move expeditiously through this period… time kills deals!

Conducting Financial Due Diligence (and Renegotiating Terms!)

Now you get to open the hood and see what you're really buying!

We strongly recommend hiring a quality of earnings (QoE) provider that has an offering tailored for SMBs.

There are many… send us a message for recommendations!

You want to ensure that the numbers from the Confidential Information Memorandum (CIM) tie out to reality through a proof of cash and double-check that the add-backs are bona fide.

You’ll also want to smoke out issues like customer and supplier concentration, and declining financial performance.

A little insider baseball:

As of June 2024, about 60% of deals need to be renegotiated post-QoE or financial due diligence.

A common trap for the unwary is when financially sophisticated clients attempt to conduct their own QoE.

These transactions move fast, often involve poor bookkeeping, and inexperienced sellers. It’s better to let the experts handle it.

Also, working capital is often overlooked, and we'll do a deeper dive on this later in the course.

Business Due Diligence

Now, you need to get familiar with the operations of the business and confirm that you are properly equipped to run this type of business!

This means assessing everything from your ability to work with the type of employees in the business (who are often very blue-collar), to technical insider lingo and navigating industry diplomacy.

Understanding the day-to-day operations and the company's culture will help ensure a smoother transition.

Securing Your Financing (SBA or Conventional)

Securing financing is a key early step in the acquisition process.

Your goal: obtain a term sheet and commitment letter from an SBA 7(a) lender or conventional financing source.

There are many great lenders who specialize in large acquisition financing, and many excellent brokers who can assist in securing the financing.

Evaluating both SBA and conventional financing options will help you choose the best fit for your acquisition.

Negotiating with Potential Investors (From Term Sheet to Subscription)

Next, and likely simultaneously with your financing, you’ll want to have a meeting of the minds with your prospective investors.

They will look at you, the business, the acquisition terms, and the investment terms (more on this in future issues).

The goal is to get those investors to sign subscription documents and wire funds.

These investments are almost always governed by Regulation D, including Rule 506(b) and 506(c), and all investors should typically be accredited.

Pro tip! If you have a good deal, you will almost always find investors to support your acquisition. Don’t be afraid to chase a larger target than you might be able to afford on your own, as you’ll get the necessary down payment money!

Did you know that Kevin and Eric host a podcast called Mundane Millionaires?

Each week, we publish audio and video interviews with incredible entrepreneurs just like you who are building time and financial wealth through entrepreneurship.

In our latest episode, we sat down with Nolan Gore, owner of Top Choice Lawn Care. Nolan shares his journey from serving in the Marine Corps to acquiring and expanding a struggling lawn care business in Austin, Texas. He discusses the challenges of scaling a business from $1.5 million to over $8 million in revenue, emphasizing the different skill sets required at various stages of growth.

Listen to or watch the latest episode today and please leave us a five-star review on your favorite podcasting platform!

Listen to Mundane Millionaires Now!

Watch Mundane Millionaires Instead!

Legal Due Diligence

Next, your attorneys will do a deep dive into the legal elements of the target.

The goal is to ensure that the target company is legally sound and that the transaction is structured such that the assets or equity you aim to acquire are transferable.

They’ll also verify that the business isn’t facing lawsuits and that the assets are not encumbered by liens.

Thorough legal due diligence helps prevent future legal complications.

Negotiating Agreements

Your counsel will negotiate the legal documents, from the purchase agreement to ancillary agreements, employment agreements, promissory notes, etc.

This process can range from very simple to very complex, depending on the specifics of the deal.

Clear communication and experienced legal guidance are key to successfully navigating this stage.

Closing

The closing process involves getting all documents signed and implementing the transaction.

This includes finalizing the purchase agreement, ensuring all conditions precedent are met, and transferring ownership.

A smooth closing is the culmination of all your due diligence and negotiations, resulting in the official transfer of the business.

Post-Closing Considerations

Post-closing, there are several considerations to ensure the ongoing success of the business.

These include implementing employee handbooks, improving customer and supplier agreements, and cleaning up the holding company structure.

Addressing these areas will help solidify your ownership and set the stage for future growth.

We’ll cover each of these topics in depth in future issues!

Disclaimers

Now for a few required disclaimers. Sorry in advance!

1. This course is being presented strictly for educational and informational purposes, and not for the purpose of marketing any legal services or seeking legal employment and is not motivated by pecuniary gain.

2. The opinions stated in this course from the authors represent the opinions of such individual author and not the opinions of any other person or organization.

3. Nothing contained in this course or otherwise from the authors hereof is to be interpreted as legal, financial, tax, investment and/or any other form of advice. Please consult your own legal, financial, tax, investment and/or other advisors.

4. The authors are not your lawyer, and no information provided in the course of this class or otherwise has the affect of forming an attorney-client relationship between you and the authors. In short, get your own lawyer!

5. This course is being presented by The SMB Center LLC and has no affiliation or relationship SMB Law Group LLP.

About the Authors

The authors have worked for some of the most elite law firms in the world. 

During their time in BigLaw, they regularly worked on transactions in the hundreds of millions to billion dollar plus range for some of the most recognizable companies in the world and have extensive experience with M&A.

The authors have since begun investing in select SMB acquisitions and have co-founded an SMB-focused law firm where they’ve collectively worked on billions of dollars in SMB-focused M&A.

We have thrilling news to share:

1. “Session #10: You’re Under LOI, Now What?” is coming this Saturday! 🧵

   “In this session, our goal is to help you navigate the post-LOI deal roadmap…Once you're under an LOI with exclusivity, typically for 60 to 90 days (always ask for 90!), the leverage shifts in your favor as the buyer.”

2. The Business Buying Masterclass is now part of The SMB Center! 🎉

The SMB Center is your go-to destination for essential resources, practical tools, and expert insights tailored to small and medium business entrepreneurs like you. We're committed to empowering Main Street, and that includes you!

Check It Out 👇🏼

All previous masterclass sessions will be seamlessly housed on The SMB Center, ready for you to explore, and we’re looking forward to picking up where we left off. Sessions will continue to be published here, as well.

Plus, stay tuned for our new weekly newsletter!

Thank you for being part of our community. Let's embark on this exciting journey together!

Introduction

After a short break for the Summer, the Business Buying Masterclass is back.

And, we couldn’t be more excited to continue this journey with you!

In today’s session, we’ll recap the topics we’ve covered in the class thus far and give an outline of what’s to come!

Spoiler alert: We have poured time into building out the rest of the masterclass and we’re super excited for what’s to come. We’re going to cover everything—due diligence, business valuation, debt financing, attracting investors, negotiating deal documents, holding company considerations, tax matters, war stories and so much more!

Thanks for coming back for this 9th Session of this Business Buying Masterclass!

Let’s get going.

Did you know that Kevin and Eric have launched a new podcast called Mundane Millionaires?

Each week, we publish and audio and video podcast of interviews with incredible entrepreneurs just like you who building time and financial wealth as entrepreneurs.

Last week, we sat down with Raleigh Williams, a former big law lawyer turned entrepreneur, who had a whopping $26 million exit.

Listen to or watch the latest episode today and please leave us a five star review on your favorite podcasting platforms!

Listen to Mundane Millionaires Now!

Watch Mundane Millionaires Instead!

Recap

Over the first 8 sessions of the masterclass, we took a deep dive with you into the entire pre-LOI process, or the period from when you first start of your search for a business, up through signing a letter of intent with a potential seller.

Starting with Session 2, we delved into the world of business buying.

From signing the initial NDA, drafting the letter of intent, navigating due diligence, securing financing, to finalizing agreements, we unveiled the full life-cycle of a transaction.

In Session 3, we took a deep dive into the search process to find a business, including the key areas of:

1. Establishing your criteria.

2. Exploring listing sites.

3. Networking with seasoned business brokers.

4. Uncovering off-market deals.

Sessions 4 and 5 explored brokered searches and the nuances of proprietary, “off-market” deals.

Both editions spotlighted esteemed guests, featuring both renowned brokers and accomplished off-market deal makers.

Subsequently, in Session 6, we shifted our focus back to legal intricacies with a discussion on structuring your transaction.

This session centered on understanding the distinctions between an asset deal and a stock deal — a crucial foundation for any transaction.

Finally, in Sessions 7 and 8, we embarked on an in-depth exploration of the very first document you’ll encounter in your transaction: the formidable “Letter of Intent.”

Indeed, a great start to the business buying process.

What’s to Come!

With the LOI process behind us, we press on with the intent to cover the entire transaction cycle - everything from due diligence all the way to negotiating a definitive purchase agreement, closing your transaction, and everything in between.

M&A is obviously an enormous discipline that includes buying and selling transactions conducted by both public and private entities. Because this audience is comprised mostly of folks interested in buy-side, lower-lower-middle-market or “premium Main Street” (SMB) transactions, that will be our principal focus. 

A rough agenda of what’s to come is the following:

1. Due Diligence

2. Financing the Deal - SBA Debt

3. Financing the Deal - Equity Investors

4. Purchase Agreement - Purchase Price Mechanics (including Seller Financing)

5. Purchase Agreement - Representations & Warranties, Covenants and Indemnity

6. Ancillary Transaction Agreements & Other Documents

7. Tax Considerations

8. How to Find Good Transactional Specialists

9. Rescuing Your Deal from Disaster

10. Closing Your Deal

11. Final Thoughts / Additional Resources

We’re super excited for what’s to come over the coming weeks and months as we navigate you through the transaction process.

Of course, while we have tried to be comprehensive in what we have planned, it’s impossible to cover everything! If there are any subjects you’d like to see added, please let us know.

We’re doing this for YOU, so we’re happy to accommodate requests.

Why are we doing this?

We love the community of acquisition entrepreneurs and SMB searchers. We believe you are some of the most driven, giving, ambitious, and frankly cool people that exist.  

We love what you’re trying to do and we know it’s HARD, so we hope this helps you in some way.

Disclaimers

Now for a few required disclaimers. Sorry in advance!

1. This course is being presented strictly for educational and informational purposes, and not for the purpose of marketing any legal services or seeking legal employment and is not motivated by pecuniary gain.

2. The opinions stated in this course from the authors represent the opinions of such individual author and not the opinions of any other person or organization.

3. Nothing contained in this course or otherwise from the authors hereof is to be interpreted as legal, financial, tax, investment and/or any other form of advice. Please consult your own legal, financial, tax, investment and/or other advisors.

4. The authors are not your lawyer, and no information provided in the course of this class or otherwise has the affect of forming an attorney-client relationship between you and the authors. In short, get your own lawyer!

5. This course is being presented by The SMB Center LLC and has no affiliation or relationship SMB Law Group LLP.

About the Authors

Eric & Kevin, the authors of this masterclass, have worked for some of the most elite law firms in the world. 

During their time in BigLaw, they regularly worked on transactions in the hundreds of millions to billion dollar plus range for some of the most recognizable companies in the world and have extensive experience with M&A.

The authors have since begun investing in select SMB acquisitions and have co-founded an SMB-focused law firm where they’ve collectively worked on hundreds of millions of dollars in SMB-focused M&A .

Leave a comment

And, we couldn’t be more excited to continue this journey with you!

In today’s session, we’ll recap the topics we’ve covered in the class thus far and give an outline of what’s to come!

Spoiler alert: We have poured time into building out the rest of the masterclass and we’re super excited for what’s to come. We’re going to cover everything—due diligence, business valuation, debt financing, attracting investors, negotiating deal documents, holding company considerations, tax matters, war stories and so much more!

Thanks for coming back for this 9th Session of this Business Buying Masterclass!

Did you know that Kevin and Eric have launched a new podcast called Mundane Millionaires?

Each week, we publish and audio and video podcast of interviews with incredible entrepreneurs just like you who building time and financial wealth as entrepreneurs.

Last week, we sat down with Raleigh Williams, a former big law lawyer turned entrepreneur, who had a whopping $26 million exit.

Listen to or watch the latest episode today and please leave us a five star review on your favorite podcasting platforms!

Listen to Mundane Millionaires Now!

Watch Mundane Millionaires Instead!

What now?

In today’s session, our goal is to help you master the art of crafting and presenting an LOI that does more than just get you noticed—it makes you memorable.

To do that, we’re going to keep this session simple, with a straight-to-the-point list of seven ways to improve your LOI’s chances.

Thanks for tuning in to the 8th Session of this Business Buying Masterclass!

Did you know that Kevin and Eric have launched a new podcast called Mundane Millionaires?

Each week, we publish and audio and video podcast of interviews with incredible entrepreneurs just like you who building time and financial wealth as entrepreneurs.

This week, we sat down with John Seiffer, an experienced small business advisor and the Founder of CEO Boot Camp. John has over 40 years of small business experiencing, from founding a company of his own to working with hundreds of small business owners as an advisor.

Listen to or watch the latest episode today and please leave us a five star review on your favorite podcasting platforms!

Listen Now!

Watch Now!

Introduction

You’ve made several offers but keep coming in second place.

What now?

In today’s session, our goal is to help you master the art of crafting and presenting an LOI that does more than just get you noticed—it makes you memorable.

To do that, we’re going to keep this session simple, with a straight-to-the-point list of seven ways to improve your LOI’s chances.

Thanks for tuning in to the 8th Session of this Business Buying Masterclass!

Did you know that Kevin and Eric have launched a new podcast called Mundane Millionaires?

Each week, we publish and audio and video podcast of interviews with incredible entrepreneurs just like you who building time and financial wealth as entrepreneurs.

This week, we sat down with John Seiffer, an experienced small business advisor and the Founder of CEO Boot Camp. John has over 40 years of small business experiencing, from founding a company of his own to working with hundreds of small business owners as an advisor.

Listen to or watch the latest episode today and please leave us a five star review on your favorite podcasting platforms!

Listen Now!

Watch Now!

A Love Letter

Establishing a personal connection with the seller can make an offer more appealing.

This could be through a heartfelt letter to the seller, expressing your genuine interest in the asset, appreciation for its value, and the promise to uphold their legacy.

Connecting over shared interests or demonstrating a deep understanding of the industry can also make the letter more compelling.

Proof of Funds

Showcasing trustworthiness and instilling confidence is essential to stand out.

The number one fear a seller will have through the entire deal process is that a buyer is going to back out of a deal after substantial time and expense has been invested.

Lack of financial resources and the inability to obtain financing (debt or equity) is one of the primary reasons a buyer may back away from a deal.

Providing clear evidence of financial capability, which may include a preapproval letter from an SBA lender, equity commitments from investors, and proof of personal financial resources, such as screenshots of bank balances or additional backup funds, not only assures the seller of your ability to make the purchase, but also establishes you as a serious, reliable buyer.

Reduction in Contingencies

Making your offer as straightforward and easy as possible can help you stand out.

This includes reducing the number of contingencies in the offer, like removing financing clauses if you're prepared to pay in cash. By limiting unnecessary contingencies, you increase the certainty of the deal closing and can save both parties considerable time.

Practice Tip:

While it’s easy to get caught up in reducing contingencies to improve your chances of winning the deal, be careful not to overpromise what you can realistically deliver.

For example, if you cannot close the deal without adequate debt or equity financing place, make sure to state that contingency clearly.

The last thing you want to do is signal to a seller that you’re prepared to close with cash, only to slow roll what seller expects to be a quick process - or worse, walk away from the deal - because you don’t have adequate financing in place.

Speed

Being prepared, acting quickly, and remaining responsive can make your offer more attractive.

Having done your research, knowing the market well, and being ready to make a fast offer could give you a significant edge.

Speed also extends to payments, with immediate compensation for associated professionals like brokers or inspectors adding to the allure of your offer.

Remember our mantra: Time kills deals. Be decisive and move quickly and you’ll increase your chance of winning.

A Clean Offer

Notwithstanding the preceding section on speed, ensuring your offer is error-free and detailed is crucial.

Paying meticulous attention to the names, addresses, numbers, and dates in the offer document reflects your professionalism and seriousness, increasing the seller's confidence in your offer.

More than just these details, paying attention to the terms of your offer is perhaps even more crucial. We can’t count the number of times we’ve had potential clients approach us with signed LOIs that are structured as an asset acquisition but refer repeatedly to an equity acquisition.

Or worse yet, that have directly contradictory terms.

It’s easy to rush an offer out in order to appear fast and committed.

But do you know what sellers hate even more than slow buyers? Sloppy buyers!

Take the time to craft a clean, well organized and thoughtful offer and your LOI may jump to the front of the stack!

Pay Well

In addition to offering a competitive price, including incentives can make your offer more enticing.

This could be in the form of tips for inspectors, immediate payments for lawyers or brokers, or unique personal gestures tailored to the seller's interests.

Even a little bit goes a long way, so look for ways to sweeten the pot in a way that doesn’t jeopardize your financial model, and that modest investment may reap exponential dividends on the path to closing.

Deliver in Person

Personal delivery of the offer can enhance the trust and connection between buyer and seller.

Handing over a well-organized, bound offer packet in person and taking the opportunity to establish rapport with the seller can underscore your commitment and dedication, making your offer stand out in a crowded market.

Disclaimers

Now for a few required disclaimers. Sorry in advance!

1. This course is being presented strictly for educational and informational purposes, and not for the purpose of marketing any legal services or seeking legal employment and is not motivated by pecuniary gain.

2. The opinions stated in this course from the authors represent the opinions of such individual author and not the opinions of any other person or organization.

3. Nothing contained in this course or otherwise from the authors hereof is to be interpreted as legal, financial, tax, investment and/or any other form of advice. Please consult your own legal, financial, tax, investment and/or other advisors.

4. The authors are not your lawyer, and no information provided in the course of this class or otherwise has the affect of forming an attorney-client relationship between you and the authors. In short, get your own lawyer!

5. This course is being presented by The SMB Center LLC and has no affiliation or relationship SMB Law Group LLP.

About the Authors

The authors have worked for some of the most elite law firms in the world. 

During their time in BigLaw, they regularly worked on transactions in the hundreds of millions to billion dollar plus range for some of the most recognizable companies in the world and have extensive experience with M&A.

The authors have since begun investing in select SMB acquisitions and have co-founded an SMB-focused law firm where they’ve collectively worked on hundreds of millions of dollars in SMB-focused M&A.

Introduction

So, you’ve found a business you like and you’re ready to make your first offer?

But how? And what should it include?

We’re glad you asked!

In this session, we’ll walk through the structure and contents of a letter of intent (often referred to as an LOI).

Our goal in today’s session is to arm you with the information you need to develop an effective offer that both improves your chance of success while simultaneously protecting your interests.

Welcome to the 7th Session of this Business Buying Masterclass.

Let’s get started!

Did you know that Kevin and Eric have launched a new podcast called Mundane Millionaires?

Each week, we publish and audio and video podcast of interviews with incredible entrepreneurs just like you who building time and financial wealth as entrepreneurs.

This week, we sat down with Katherine Dextraze, who recently acquired Your Solar Mate. Katherine’s path to entrepreneurship includes degrees in nuclear engineering and medical physics, and 11th hour busted deal, and a successful closing process that included her wedding right in the middle!

Listen to or watch the latest episode today and please leave us a five star review on your favorite podcasting platforms!

Listen Now!

Watch Now!

What Is an LOI?

A letter of intent (often referred to as an “LOI”) is a short-form document utilized by a buyer and seller to negotiate certain material, preliminary terms of a potential acquisition. 

Sometimes you’ll hear other terms thrown around, like indication of interest (“IOI”), memorandum of understanding (“MOU”), or term sheet.

While there are some key differences between each of these documents and their intended use, by and large when used in the small business acquisition space, the differences are immaterial.

The principal characteristic of each them is all focused on the same outcome – to document a preliminary, non-binding understanding between buyer and seller that is intended to create a strong foundation for the negotiations to come. 

Why is the LOI step necessary? Wouldn’t it be more efficient to skip this step and move on to negotiating the purchase agreement? 

It can be, at times, sure.

However, in most instances, before you spend the considerable time and cost necessary conducting fulsome due diligence and negotiating a purchase agreement, it makes sense to confirm that you and the seller are on the same page with regard to major components of the deal, including most notably the purchase price, the deal structure (asset -vs- equity), the time frame, non-compete covenants, the exclusivity period, and certain other deal terms.

Waiting until you’re at the three-yard line to find out that you and the seller are not on the same page regarding any “deal breaker” terms would be a waste of time and money and a major set back for your search! 

The Non-Binding Nature of LOIs

Even though the LOI is of critical importance, it is also of critical importance (in almost every case) that the LOI be non-binding.

In other words, the LOI is intended to summarize key terms of an eventual transaction, but neither party should be able to legally enforce the terms of the LOI on the other party. 

That seems crazy, right?

Well…no.

The LOI is a “hand-shake agreement” on fundamental transaction terms intended to find and flush out any material differences between the parties’ expectations that make abandoning the transaction before incurring meaningful fees and expenses possible. 

However, the LOI is by definition not a complete agreement. The buyer has not yet had a chance to properly diligence the target company.

In other words, preserving optionality after the LOI stage is in everyone’s best interest. 

Practice Tip: Don’t make the mistake of assuming that an LOI will automatically be non-binding. Courts have, at times, held certain LOIs to be binding agreements, placing the parties in very difficult situations as a result. Be sure to make it 1,000% clear that your LOI is non-binding in the text of the LOI itself. State it on every page if you need to. The last thing you need is a grumpy seller claiming “But I thought we had a deal!” and suing you when you have to walk away from the deal as a result of mis-stated financial statements or otherwise.

Standard Terms of an SMB LOI

The following is a category-by-category analysis of the terms of a typical LOI, and how to think about each:

1. Buyer Introduction

It’s always a good idea to introduce yourself and your strengths as a buyer at the outset of an LOI. Be sure to explain what it is that attracts you to the business and why you’re interested in acquiring it.

But remember that a seller is usually less interest in the amazing returns you expect to get on your investment (and in fact may use that information to negotiate a higher multiple).

Be smart here - try to identify those things that the seller cares most about during the preliminary diligence process, including in the confidential information memorandum (CIM) and discussions with the broker and seller.

Recognize things like the “strong brand equity and reputation,” “skilled and dedicated workforce,” etc., and mention how you want to continue the legacy that the Seller built.

Remember: You’re selling yourself as a buyer as much as the seller is selling their business.

2. Transaction Description

With pleasantries out of the way, you’ll move immediately into the substance of the LOI.

There are a number of ways to do this, but it’s not uncommon to use an “outline” format with numbered headings.

First up?

The Transaction Description.

The LOI should provide a clear description of the transaction, including WHO is buying WHAT from WHOM?

Is this an asset or equity deal? Who is the actual buyer (you personally, an existing entity, or a new entity to be formed during the transaction process)?

All of these items should be addressed here.

Practice Tip: It’s easy to gloss over the accuracy of the “buyer” in the LOI, but you do so at your own peril! Oftentimes an LOI will be drafted describing “John Doe” as the buyer, when in reality John Doe has every intention of forming a new entity for purposes of the acquisition.

Now assume for a second you have some seller financing in the deal that John Doe doesn’t want to personally guarantee. By not clarifying who the “buyer” is, the seller may think John Doe, individually, is the buyer and, therefore, all of John Doe’s personal assets are available to enforce the seller note. This is not a good outcome for John Doe if he didn’t want his personal assets guaranteeing the note!

Even if something seems trivial, it may have broader implications that you’re not thinking of. Make sure you’re consulting the right experts throughout the LOI process to make sure you don’t inadvertently include or omit something important at the LOI stage, making it more difficult to negotiate what you want down the road!

For example, a simple transaction description could look like the following: 

At the closing of the Acquisition (the “Closing”), a new entity to be formed by John Doe (the “Buyer”) will purchase from [Target Company] (the “Seller”), and the Seller will sell to the Buyer, all of the assets of the Seller used or held for use in the Business.

Make special note of that last clause.

Take extra care to make sure that you accurately describe the structure of the transaction!

As we discussed in Session #6 - Structuring the Deal, the structure of your transaction has far reaching consequences on fundamental deal points that drive significant value, such as liabilities being assumed by the buyer, taxes, third-party consents needed for closing, and more.

The last thing you want to do is describe an stock acquisition in an LOI when what you really meant was an asset acquisition, or vice versa. It can be very costly if you can’t walk back such a seemingly innocent mistake!

3. Purchase Price

The next section is easy… sort of!

Here you’ll describe how much is going to be paid, and in what form it will be paid! 

This may be as simple as a sentence saying the full purchase price will be paid in cash at the closing.

More likely than not, though, it will include some combination of two or more of following:

1. Cash

2. Seller promissory note

3. Assumption of debt

4. Transfer of in-kind property (i.e., tangible property like equipment)

5. Equity interests in the buyer entity (or holding company of the buyer entity)

6. Escrows and holdbacks

7. Future, performance-based earn out payments (which in turn can be paid in one or more of the foregoing methods)

When describing any of the above, there’s a balance to be struck.

You want to provide enough detail that it avoids future disagreement over fundamental terms, but you don’t want to provide so much detail that you end up engaging in protracted negotiations with the seller on “legalese” at the LOI phase.

For example, if you intend to include seller financing, you may simply state the size of the note, the amortization period and maturity date, the interest rate, and whether it will be secured or unsecured and/or guaranteed by the buyer principals.

As an example, a sample purchase price provision could look like the following: 

The purchase price for the Company (the “Purchase Price”) would be $___________, [and would be paid in cash at the Closing] [payable in the following manner: [describe if holdback, escrow or earnout or if noncash consideration is being used]].

In most cases, you may want to include some agreed level of working capital in your transaction. If so, you’ll want to at least mention it in the LOI.

You may be wondering “how can I determine the need for working capital without having conducted a full due diligence process?”

Great question!

Typically, you can’t. So you want to include general language. For example, you might include the following in your LOI:

The purchase price assumes that the assets will include a normalized level of working capital consistent with the past practices of the Company at a level to be mutually agreed by the parties in the Definitive Agreement and determined in accordance with the Buyer’s third-party quality of earnings review.

4. Representations and Warranties and Indemnification

Negotiating fulsome representations and warranties and an accompanying indemnification provision is generally beyond the scope of the LOI stage. 

That said, the LOI should typically state that the purchase agreement will contain “customary” representations and warranties to avoid any disagreement over whether or not the buyer is purchasing the business “as is.”

Additionally, the LOI should lay out any agreed-upon terms in the indemnification section.

Practice Tip: For those of you familiar with the M&A process, you may be tempted to include some level of detail surrounding indemnification, such as the survival period for representations and warranties, baskets or deductibles, and indemnification caps.

Tread carefully here!

The reality is that many sellers and their counsel in the “main street” M&A space aren’t as savvy as their private equity counterparts when it comes to indemnification. We often see more buyer-friendly indemnification terms in small business transactions, so being too detailed in the LOI could actually backfire. You may end up giving away more than you need to! 

The negotiation of representations and warranties and indemnification can often be a point of frustration for first-time buyers and sellers.

Why does it take so long and why do these provisions even matter? 

Well sit tight and stay tuned, because we’ll cover indemnification in MUCH more detail later in the course!

5. Conditions to Closing

This section will describe all of the “contingencies” that the transaction hinges on.

The last thing you want to do is set the expectation with the seller that you will close the transaction before you’re ready!

In this section of the LOI, you will list several customary closing conditions, but you should feel free to add any deal or buyer-specific conditions if they are important to the ability of the buyer to close the transaction.

Practice Tip: The seller is almost always going to be nervous through the entire deal process that the transaction is going to fall apart and the buyer will walk away. Transparency is your best friend here. Communicate expectations and requirements clearly and early to avoid any unnecessary stress caused by surprises during the deal process!

Some common conditions to closing may include:

1. Receipt of any required third-party consents, such as landlord consents or customer contracts.

2. Receipt of any regulatory approval and/or permits.

3. Financing conditions, including receipt of debt financing, as well as receipt of equity financing (if raising outside capital), in each case on terms acceptable to buyer.

4. Execution and delivery of definitive agreements.

5. Acceptance of offers of employment by certain key employees.

6. Any other action the consummation of which is critical for purposes of closing the deal. 

6. Non-Compete / Non-Solicitation

If the seller will be agreeing to a non-competition or non-solicitation covenant (i.e., agreeing not to compete with the buyer in the subject business area for a certain period of time or hire the buyer’s employees after closing), this should be stated clearly in the LOI.

A brief note on the enforceability of non-competes: 

Non-compete provisions have historically been viewed skeptically by the courts. 

The rationale is simple: telling a human being they can’t earn a living is generally frowned upon except in certain limited instances. One of those instances that is common accepted by courts is the sale of a business. 

In short, if the seller is allowed to open up a competing business across the street the day after you close, you’re SUNK. After all, they know the market, the customers, the employees, and literally everything else about the business at a level it will take you years to achieve.

Therefore, most courts will approve a non-compete so long as it is reasonably tailored in both SCOPE (i.e., geography and type of business) and DURATION (i.e., how long) solely to the extent necessary to protect your LEGITIMATE BUSINESS INTERESTS.

As an example, telling the seller of a car wash in California that they can’t open a competing car wash anywhere in America wouldn’t be reasonable in SCOPE. If, however, you told them they couldn’t open a competing car wash across the street (or even anywhere in the county), you’re likely on safe ground.

You get the idea. 

Be careful not to negotiate non-compete terms that are so restrictive that they are subject to legal challenge.

Practice Tip: The law governing non-competes varies significantly from state to state. You should speak with a competent transaction attorney with experience in this area regarding what is allowed in your jurisdiction. 

7. Confidentiality

One provision that’s often overlooked in an LOI is the confidentiality provision.

Before a buyer begins negotiating an LOI with a seller, the buyer often executes an non-disclosure and confidentiality agreement with the seller’s broker. As a result, it’s easy to think that the parties are covered by confidentiality, and that may be the case, as many broker NDA’s cover the seller as well.

But the seller is generally not a party to the broker’s NDA and the broker’s NDA usually only cover’s information shared by the seller with the buyer, and not the other way around.

For all those reasons, it’s important to include a confidentiality provision in an LOI that covers the sharing of information by both seller and the buyer.

8. Exclusivity and No-Shop

Arguably the most important provisions of the LOI is the exclusivity and “no-shop” provision.

The exclusivity and no-shop provision prohibits the seller from continuing to market the business and negotiate with alternate buyers while your transaction is pending.

Many sellers - and especially their brokers - may resist agreeing to exclusivity on the theory that they shouldn’t have to stop marketing the business in case the buyer leaves the seller “at the alter.”

While a buyer may empathize with that argument, it’s a flawed one.

The buyer is making a substantial investment of cost and time on due diligence and other elements of the negotiation process. If the seller is free to continue to negotiate with other potential buyers, there’s nothing stopping the seller from causing you to spend substantial time and resources (financial and otherwise), only to drop the buyer at the 11th hour in favor of another buyer with a slightly higher offer.

A buyer should always resist any attempt by the seller and/or broker to permit continued marketing of the business once the LOI is signed.

Any refusal by the seller and/or broker to enter into exclusivity is a red flag and a buyer should strongly consider walking away from the deal.

A example of an exclusivity and no-shop provision could look like the following example: 

Until the later of (a) [number] days after the Signing Date and (b) the Termination Date, Seller will not, directly or indirectly, and will cause its affiliates and its and their respective directors, officers, employees, members, managers, agents, advisors and representatives not to, (i) solicit or encourage any inquiries, discussions or proposals regarding, (ii) continue, propose or enter into negotiations or discussions with respect to, (iii) provide non-public information relating to or in connection with or (iv) authorize, recommend, propose or enter into any confidentiality agreement, term sheet, letter of intent, purchase agreement or other agreement, arrangement or understanding regarding an acquisition of all or part of, an investment in, or a business combination or consolidation or the formation of a partnership or joint venture with, or the issuance of equity securities representing more than 10% of the outstanding equity securities of, the Company or any of its affiliates, in each case other than involving only Buyer or any of its affiliates.  Until the Termination Date, Seller agrees to inform [Buyer] promptly of any inquiry, discussion or proposal from any person or entity of the type referred to above, including the terms thereof.

9. Limited Binding Effect of the LOI

At this point, you may be asking yourself:

“Wait a second, I thought you said back at the start that LOIs should not be binding agreements. What good is an exclusivity and no-shop provision if it’s not binding?”

That’s a great question!

While the LOI generally is non-binding (especially the deal terms!), certain portions of the LOI should, indeed, be binding!

For the reasons discussed above, a buyer doesn’t generally want to be obligated to any commercial terms or to even close a transaction without conducting thorough post-LOI due diligence review on the business.

But certain provisions of the LOI must be binding. Examples of binding clauses in an LOI will include:

1. Confidentiality

2. Exclusivity and no-shop provision

3. Jurisdiction

A simple example paragraph that an LOI may include regarding the binding and non-binding nature of an LOI is as follows:

“Except for paragraphs [list paragraphs that should be binding], each of which shall be binding on the parties, this letter, including the first paragraph hereof, is intended to express only a mutual indication of interest in the Acquisition and does not represent any form of legally binding commitment or obligation on the part of Buyer or Seller.”

Final Thoughts

LOIs are an important part of the transaction process. In addition to negotiating and clarifying certain important terms of a deal, it’s also an opportunity to set the tone and get a preview at the seller’s, the broker’s, and the seller’s legal counsel’s approach and demeanor.

A preview of things to come!

Use it to your advantage.

You can use the LOI process to build a lot of goodwill with the seller.

But beware! You can burn goodwill with a seller just as fast (if not faster) than you can build it.

So be professional, be thoughtful, and be constructive.

Disclaimers

Now for a few required disclaimers. Sorry in advance!

1. This course is being presented strictly for educational and informational purposes, and not for the purpose of marketing any legal services or seeking legal employment and is not motivated by pecuniary gain.

2. The opinions stated in this course from the authors represent the opinions of such individual author and not the opinions of any other person or organization.

3. Nothing contained in this course or otherwise from the authors hereof is to be interpreted as legal, financial, tax, investment and/or any other form of advice. Please consult your own legal, financial, tax, investment and/or other advisors.

4. The authors are not your lawyer, and no information provided in the course of this class or otherwise has the affect of forming an attorney-client relationship between you and the authors. In short, get your own lawyer!

5. This course is being presented by The SMB Center LLC and has no affiliation or relationship SMB Law Group LLP.

About the Authors

The authors have worked for some of the most elite law firms in the world. 

During their time in BigLaw, they regularly worked on transactions in the hundreds of millions to billion dollar plus range for some of the most recognizable companies in the world and have extensive experience with M&A.

The authors have since begun investing in select SMB acquisitions and have co-founded an SMB-focused law firm where they’ve collectively worked on hundreds of millions of dollars in SMB-focused M&A.