Standard Buying Sequence in Florida

searcher profile

December 06, 2024

by a searcher in St. Petersburg, FL, USA

So I just submitted an LOI on a deal here in FL and Ive got the Brokers telling me what I think is non-sense and id ,like to get others perspective

my advisors told me the standard process for buying a business is LOI --> due diligence --> renegotiate if necessary--> sign contract and close same day

the broker I'm dealing with tells me I need to submit a contract offer and make a deposit so the seller knows I'm serious. I hold him HELL NO. I have outdated financials and that an LOI should be enough

He is saying a deposit is a normal thing

please let me know your perspectives, especially when dealing with business brokers of florida

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commentor profile
Reply by a professional
from University of Michigan in Detroit, MI, USA
Hi ^redacted‌, good job for pushing back. Deposits are the exception rather than the norm in this space. To the extent they come up at all, it is because the seller's broker is pushing it. I'm not going to say never pay a deposit (there are times when it is a necessary evil). But in any event, it has to be refundable (if diligence turns up flags, you get to pull the plug and walk away with your money). As for timeline, will you be relying on an SBA loan? If so, you can't sign and close simultaneously (your lender will have a closing process). Let me know if you want to discuss. My law firm, Groundswell Advisors, LLP, is focused on the ETA space. Would be happy to talk. Reach me at redacted
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Reply by an intermediary
from Wake Forest University in Winston-Salem, NC, USA
I'm not in Florida, but I have a bit of a contrarian view anyway (but I appreciate the joyful tone and tenor of the responses above). To me, the odd part about the request is not the EMD, but the simultaneous sign and close. Extremely risky and nerve-wracking for a seller, and their M&A advisor/broker/attorney should be advising against this (and if SBA, it is a non-starter).

As for the EMD, (See related post: https://www.searchfunder.com/post/earnest-money-deposit). It is absolutely normal in deals under $1.5 mm to $2 mm in EBITDA, depending on buyer type (see below), but it does taper off at this point. Even when representing buyers, we recommend their offer includes an EMD (with the right protections -- refundable during a set period, placed in a trust account, etc.). As mentioned in other posts, the correlation between a buyer that puts in an EMD and actually closes is quite high, and it does help the seller separate buyers ‌when several are interested. Buyer type and experience is also a factor. A PE firm or strategic coming in as a buyer with a portfolio of companies, track record, and balance sheet is very different (and would not be expected to put in an EMD) from an individual (whether structured as an LLC or not) with zero to a few deals under their belt and a limited balance sheet. Different risk profiles.
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