5 Steps To Take Once You Get a Signed LOI
You found an acquisition deal that seems promising. You got a signed Letter of Intent (LOI). Now, it’s time to dig in and see if this deal is really right for you. First, we recommend taking some steps to prepare yourself for this phase in your deal. You’re about to be busy.
Our team has decades of experience executing deals personally and helping new buyers and self-funded searchers like you close the best deals they can. We know the process inside and out. We can promise you that this whole journey will be easier if you take these steps soon after your LOI is signed.
Here are the 5 important steps you should take after your LOI is signed:
1) Have a System for Capturing Documents
Develop a good system for capturing documents. You can use Google Docs, Dropbox, or a paid, secure solution. Be sure that you organize your folders in a way that makes accessing the data later on easy for yourself. Think about your next steps after receiving an email with 14 documents attached. What will your process look like? How will you organize these documents into appropriate sections? Keep in mind that you will be receiving hundreds, if not thousands, of PDFs and Excel files. Your ability to stay organized can be the difference between closing a deal or allowing that deal to blow up.
2) Use a Project Management Tool or Task Manager
Use a system or program that will allow you to understand timeline contingencies so that you can predict timelines for yourself, your investors, your seller, and other people involved in your deal. You’ll need to know when certain pieces of your process will be done. Rather than listing the 17 items that need to be completed before you hit a milestone, you want to be able to say, “We’ll be done in two to three weeks because we have 17 things to do”. Whether you're using Basecamp, Trello, Asana, or even a spreadsheet, you're going to want to be organized enough to understand the timeline well.
3) Perform a Weekly Go or No-Go Check
Set up a weekly check-in where you ask yourself if you are either fully investing in the deal for the next week, cautiously investing for the next week, or stopping the diligence process altogether. Fully investing means you’re pushing your diligence provider and your lawyer. You’re having discussions with your lender. You’re busy pushing the deal forward. Stopping the diligence process would happen when you find out that the EBITDA is 30% of what the seller reported. That deal is obviously dead. It can also be more nuanced than that. If any of your top five deal breakers show up in your deal, then you're either done with diligence, you’re renegotiating the offer, or walking away. You need to decide where you stand.
Cautiously proceeding is a bit trickier. You might find something in the deal that you don't like, or maybe haven’t considered, that disrupts your way of thinking about the opportunity. You might not want to stop the deal. You’re also in a place where you don’t want to push ahead at full steam. You may need a week or two to assess this particular issue. During that week you may want to stop your accountant and your lawyer.
Given the speed that deals happen in, you won't necessarily have the easiest time knowing when you need to go, stop, or slow down. That’s why it’s important to schedule regular check-ins with yourself.
4) Prepare Your Friends and Family
Let your family and friends know that they're going to see less of you over the coming weeks. If you're spending 40 to 50 hours working on diligence while holding down your regular job, you won’t be able to tend to your relationships like you used to. It’ll be more difficult to catch up with people, return phone calls, and talk to your mother on Sundays.
The people in your life already know that you’re entering into an entrepreneurial endeavor. The last thing you want to do is to scare them or lose their support. If they’re not prepared, they might encroach on your privacy and time. Let them know up front, and ask them to respect your wishes.
5) Get Your Physical and Mental Health In Order
Make sure you have a physical and mental regimen because this process will push and pull you to the very end of your mental capacity. If you start slacking on your workout regimen, your mental health regimen, or the activities that give you life and energy, you can quickly find yourself in a depleted mental space.
Your mental and physical health regimen is even more important now than it ever was before. Hold yourself accountable for your workouts, your daily walks, or maybe it’s Saturday time with the kids. Make sure you have a system in place to keep you accountable. Consider having an accountability partner or setting up daily reminders on your phone or computer. Stay committed to your process, not just for the normal reasons, but because now these activities will have huge implications on the deal process.
A lack of stability can put you in a bad spot during your deal. It puts you at risk of overcommitting to a bad deal or killing a great deal for minor reasons. You could become upset and cantankerous, saying something in a heated moment to a seller, a lender, or someone else important that you can’t take back. This either kills your deal or puts intense pressure on it. Avoid that by keeping both your mind and body in good shape.
After you’ve taken care of the steps in this list, you should be organized and focused. You’ve prepared your life for the difficult and exciting weeks ahead. You are in the best shape to jump into the diligence process. If you’re ready to go, let’s get started together!