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Permalink Reply by Alex Galt on June 28, 2008 at 8:29am

The LOI (Letter of Intent) is just that, it's a non-binding agreement to come to an agreement. If you look on line, you can find examples that you can modify. Don't over think it too much. It basically just says that you're serious and that you're ready to go through the process of drawing up a sales contract, which is the one that you need to get lawyers involved with...

I've never bought an existing business, but I think that beyond financials and an inventory, etc. I'd spend a lot of time in the shop and get a sense of the traffic and character of the business. I think that I'd actually want to work some shifts to get a sense of the place and its patrons.

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Permalink Reply by Bwynn on June 30, 2008 at 10:55am

You need to get a contract attorney who deals with business purchases like yours. He can write a letter of intent for you. Its more legal binding than just intent as you will have to state why you are not purchasing the business if you decide not to. My first question is scope the area for competition and make sure your location is what it needs to be. If you have more questions contact me. I am opening August 1rst so I have alot of info. Make sure you do a business plan as well, at least the financials of the BP so you know what you will need to keep the business going. Send me a message if interested and I can give you my number if interested. Good luck

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Permalink Reply by Barbara Adams on July 3, 2008 at 6:06am

BWynn - thanks for the offer to help. I just prepared a LOI, made sure it's a non-binding. I should get all the info from them soon. I am getting so excited! I just hope, that when I see financials, I am not going to be disappointed.
Are you already set on your coffee shop?

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Permalink Reply by Barbara Adams on July 3, 2008 at 2:01pm

Here we go again - the people selling asking for my Offer now and a deposit to go together with LOI. How can I make an offer on a place that I just glanced at without seeing the exact inventory or financial papers? And a deposit with LOI, is that common?

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Permalink Reply by Alex Galt on July 3, 2008 at 3:22pm

I've never bought an existing business, the LOI we made was for buying a building to move our coffeehouse to; but we were briefly on the opposite side of this when we considered selling our business back in 2005. In the end we changed our mind, and withdrew. We were happy to supply our financials on the basis of a non-disclosure agreement. My impression is that they are within their rights to ask for a deposit (often called 'earnest money'), but you're within your rights to decline. Here's what I would do: tell them that you'd be happy to draw up a non-disclosure agreement & a LOI and sign them, but that you're not inclined to pay a deposit until you've seen the financial statements. If the financials are acceptable to you, then you can put together a detailed sales contract (more detailed the better) and pay a deposit at the beginning of that process.

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Permalink Reply by Jay Caragay on July 4, 2008 at 11:00am

There really are no hard and fast rules when it comes to purchasing an existing business, but when you say you're getting financials - exactly what are you getting?

I've looked at purchasing several businesses over the years and while seeing their books is important, what really matters is the actual tax filings - especially the sales tax filings. Anyone can claim they're making $500K a year, but does their tax filings support that? Granted, there's probably a bit of skim going on and a little failure to report income here and there to consider, but what you should base your decisions on are the filings.

Equipment is another tricky area. Just because the current owner paid $10K for his espresso machines doesn't mean that you should too. Wear, tear and fair market value play a role - check with local used equipment dealers to see how much they would pay for that equipment. The price you should pay is in there somewhere, you just have to find it.

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