Making an offer on a business

The moment an offer changes from an idea into a document is the moment a deal becomes real for both sides, and it is also the moment a buyer’s protection starts to matter more than their enthusiasm. In most Canadian small business acquisitions, that document is a letter of intent — not the final purchase agreement, but a shorter document that sets the terms both sides will negotiate under while the buyer verifies the business through due diligence. A well-built LOI does two jobs at once: it signals to the seller that you are serious enough to be worth taking off the market, and it locks in the conditions that let you walk away or renegotiate if what you find does not match what you were told.

Understand what a letter of intent actually is

Most of an LOI is deliberately non-binding — the price, the structure and the general deal terms are a starting point for negotiation, not a locked agreement, and either side can walk away from them without breaching a contract. A handful of specific clauses are usually made binding on purpose: confidentiality, exclusivity, and sometimes the treatment of a deposit. Knowing which parts of your own LOI are binding and which are not is not a technicality — it determines what you are actually agreeing to when you sign, and sellers occasionally try to make more of the document binding than a buyer should accept at this stage.

Decide what price and structure to propose

The price you propose should trace back to the evaluation work you have already done — the normalized earnings, the condition of the assets, the strength of the lease — rather than a number pulled from a general sense of what businesses like this one tend to sell for. At this stage you will also propose, tentatively, whether the deal is structured as a purchase of assets or shares and how much of the price is cash at closing versus vendor financing, but treat both as a starting position rather than a final decision; the final structure is usually worked out with your lawyer and accountant once diligence is further along.

Build in the conditions that protect you

Conditions precedent are the clauses that let you walk away from the deal, or renegotiate it, if certain things do not check out — and they are the single most important part of an LOI for a buyer. A due diligence condition lets you exit if what you find does not match what you were told. A financing condition protects you if your lender does not approve the loan. A landlord-consent condition matters if the lease needs to be assigned, and a licence-transfer condition matters if the business depends on a permit that is not automatically transferable. An LOI without real conditions is not protecting you, whatever it says on the surface.

Handle the deposit and exclusivity carefully

A deposit, when one is requested, is normally held by a lawyer in trust rather than paid directly to the seller, and the LOI should say plainly whether it is refundable if the deal falls apart for a reason covered by your conditions, or whether it becomes at-risk under specific circumstances. Exclusivity — a period during which the seller agrees not to shop the business to other buyers — is what justifies the seller taking the listing down while you work, but the length of that period is a real negotiating point: too short and you may not finish diligence properly, too long and you have given the seller little incentive to keep the process moving.

Negotiate without souring the relationship you need for diligence

The negotiation does not end when the LOI is signed — it continues, informally, through every stage of due diligence, and a seller who feels the buyer negotiated in bad faith or nickel-and-dimed every minor point tends to become a less cooperative source of information exactly when you need their cooperation most. Focus hard on the terms that actually protect you, be reasonable on the ones that do not, and remember that the seller’s willingness to be candid during diligence is worth more than winning every small point in the LOI.

Know the mistakes that sink offers before diligence even starts

The most common first-time mistakes are structural, not personal: an LOI with no real conditions attached to the price, a diligence period too short to actually complete the review, verbal side promises from the seller that never made it into the written document, deposit terms left ambiguous enough to cause a dispute later, and offering a price before financing has even been informally discussed with a lender. Each of these is avoidable with a lawyer’s involvement at the offer stage rather than only at closing, and each one has ended real deals that otherwise had a good business behind them.

• Satisfactory completion of due diligence, by a stated deadline
• Financing approval on terms acceptable to the buyer
• Landlord consent to assign the lease, where applicable
• Transfer or reapplication for any licence the business depends on
• No material adverse change in the business between signing and closing