How to make an offer an owner takes seriously

Many owners of established companies have been approached before. Some got a vague "Would you ever sell?" Some got a number with nothing behind it. Some shared their records for weeks, then watched the buyer disappear or come back with a much lower price.

So when your offer arrives, the owner is quietly asking three questions. Can this person actually pay? Did they really look at my business? Will they treat me and my people fairly? A serious offer answers all three before the owner has to ask.

Wait until you can be specific

An offer is only serious if it rests on real information. Before you make one, you should have:

• At least three years of tax returns or financial statements, and your own calculation of owner earnings (profit plus what the owner pays themselves, before loan payments and taxes).
• A conversation with a lender about this particular company.
• A clear sense of what the owner cares about: timing, employees, the company's name, staying involved, getting paid.

A number offered before you've seen the records isn't an offer. It's a guess, and if you have to lower it later, you'll lose the owner's trust.

Show you can pay

Owners worry about buyers who can't close. Address it directly:

• A letter from a lender. After reviewing your finances and the company's records, a lender may be willing to write a letter saying it's interested in financing the purchase, subject to conditions. It isn't a loan approval, so don't describe it as one. It does show that a bank has looked at you and the deal.
• Your cash. Say how much you'll put in and where it comes from. Offer to show a recent statement once the owner is ready to move forward.
• Your team. Name your attorney, accountant and lender. It tells the owner the deal will be handled properly.
• Yourself. A short paragraph on your background and why you want this company in particular.

If any of your money depends on something else, like selling a house or a partner joining, say so now. The owner will find out later anyway.

Explain your number

Owners often have a number in mind, and yours may be lower. Explaining how you got there turns a disappointing number into a conversation.

Say you're looking at a hypothetical company whose records show owner earnings of $300,000, and you're offering $900,000. A short explanation in your offer might read:

Based on the tax returns you shared, the company's owner earnings were about $300,000 last year, after adding back your salary, your health insurance and a one-time legal bill. A company like this one sells for about 3 times a year's owner earnings, which puts the price at about $900,000. At that price, the loan payments leave enough room for the company to get through a slow year.

Show which adjustments you accepted, and explain any you didn't. Talk about the numbers, not the owner's judgment. Don't list every flaw you found to justify a lower price: owners tend to hear that as an insult to their life's work. Point to the facts and let them speak.

Be specific on terms

Owners can't say yes to a vague offer. Offers are often written as a letter of intent: a short document setting out the main terms before attorneys draft the full purchase agreement. Yours should cover:

• Price and how it's paid. Cash at closing, and any seller note: the amount, how long, the interest rate, and whether payments wait until the bank is repaid. Price versus terms shows how much these choices matter.
• What you're buying. Equipment, vehicles, inventory, the name, phone numbers, website and customer lists. Whether you buy the company's assets or the company itself is a question for your attorney and accountant.
• Working capital. How much cash, money owed by customers and inventory stays in the business at closing. Our post on working capital at closing explains why this belongs in the offer.
• Conditions. Your loan approval, your review of the records, the landlord's consent to transfer the lease, any licenses. Keep the list to what you truly need.
• Timing. How long you need to check the records (often called due diligence), and a target closing date.
• Exclusivity. A period during which the owner agrees not to negotiate with other buyers while you spend money on attorneys and accountants.
• The owner's role after closing. How long, how many hours, doing what and for what pay. If you're using an SBA loan, ask your lender what its rules allow.
• Employees. What you intend for them, stated honestly.
• Confidentiality. That you'll keep what you learn private.

Most of a letter of intent is usually written so that it isn't binding, while a few parts, such as confidentiality and exclusivity, usually are. That's exactly why your attorney should draft or review it before you send it.

Respect what the owner cares about

• Walk them through it first. Present the offer in person or by phone, then send it in writing. An offer that arrives cold in an inbox feels like a transaction, and to the owner this is decades of work.
• Answer their worries directly. If they've told you they care about their employees or their name, say what you plan. What owners worry about covers how to answer each one honestly.
• Don't promise what you can't keep. "Nothing will change" isn't true, and the owner knows it. "Everyone on the crew will be offered their current job at their current pay when we close" is a promise you can keep, if you mean it.
• Give them time. A reasonable date to respond is fine. Pressure isn't. Many owners will want to talk with a spouse, an accountant or an attorney first.
• Keep the confidence. Don't discuss the offer with employees, customers, suppliers or anyone in town.

Mistakes that make an offer look less serious

• A range. "Somewhere between $800,000 and $950,000" means the owner hears only the top number, and you'll disappoint them later.
• Vague or endless conditions. "Subject to the buyer's satisfaction" tells the owner you haven't committed to anything.
• No word on financing. Silence makes owners assume the worst.
• A deliberately low opening number. You may mean it as a starting point. The owner may simply stop returning your calls.
• Lowering the price later without a real reason. If the records turn up a genuine problem, explain it with documents. Cutting the price because you can will cost you the deal and your reputation with the owner's advisors.

What to do this week

1. Write a one-page summary of how you calculated owner earnings for a company you're looking at, in words the owner would understand.
2. Ask a lender what it would need from you to write a letter of interest.
3. Write a short paragraph about yourself: your background, your money and why this company.
4. List the owner's three biggest concerns, in their own words, and how your offer answers each one.
5. Find an attorney who regularly drafts letters of intent for small business purchases.