LETTER OF INTENT
By Admin | 10 Apr, 2020
The Letter of Intent would seem like a good idea. It allows the buyer of practice and buyer of business to demonstrate to the seller of practice and seller of business that they do indeed intend to purchase the practice or business. It also lays out the overall terms of the deal. These would both seem like clear positives. However, we find the step to be unnecessary and potentially harmful to the deal. Bear in mind that we are talking about fairly simple, 100% purchase transactions. Here are few issues that are faced due to letter of intent:
- By laying out the general terms, the specifics points to be considered delayed:
When you look more closely, you will notice that the LOI generally creates more questions than it actually answers. What one party may feel is vital is completely different from what the other party feels is vital to the agreement. More often than not, problematic terms are unintentionally (or perhaps intentionally) omitted to delay conflict. - Contract without boundaries can put any transaction at risk:
When people are motivated to come to terms and “lock down the practice” or “buy the desired business” people tend to negotiate lot more to sticking points quickly without getting hung-up on immaterial matters.
When you look more closely, you will notice that the LOI generally creates more questions than it actually answers. What one party may feel is vital is completely different from what the other party feels is vital to the agreement. More often than not, problematic terms are unintentionally (or perhaps intentionally) omitted to delay conflict.
When people are motivated to come to terms and “lock down the practice” or “buy the desired business” people tend to negotiate lot more to sticking points quickly without getting hung-up on immaterial matters.
The bottom line…it’s far simpler to go straight to the purchase agreement.
If you have selected and screened the practice to buy or business to buy, you should be confident of intent anyway. Yes, the parties will take a little longer to sign the contract. The old saying “prevention is better than cure” applies here. We find the extra time spent to go through to all of the terms on the front-end is a very worthwhile use of everyone’s time. The buy and sale of a practice or buy and sell of business can be a fairly simple transaction. No need to add additional steps that makes it harder than it needs to be.
