A letter of intent, commonly referred to as an LOI, sets the table for a successful asset transaction like buying a dental practice. It details the deposit, purchase price, and relevant assets, to name a few significant points.
Essentially, the LOI outlines the agreed-upon major deal terms, allowing each party to swiftly move through the deal process. It’s one of the first significant steps to getting a deal done.
It’s vital to understand two typical strategies parties use when negotiating a letter of intent, so you can properly choose the method that works best for your situation.
- Either front-load the negotiation, including more meat in the LOI, leaving less to negotiate later, or
- Keep a light footprint, pushing more quickly into the deal while kicking some stickier issues to negotiate later in the transaction.
Both strategies can be effective. Both have drawbacks.
Front-Loading Your LOI Negotiation
Pros
When you negotiate heavily upfront, the parties set up a more straightforward pathway to get the deal done. You do the challenging work early on and dive right in on discussing the numerous considerations vital to the agreement’s success.
Cons
The downside of going back and forth from the outset is that the deal may never get off the ground. It’s not uncommon for both parties to get bogged down in the details. Plus, you don’t benefit from building trust through the arduous deal process.
Negotiating the LOI Details Down the Line
Pros
Moving past the major points early on can produce positive results. As the parties build a relationship through the transaction (and have sunk costs), they are more inclined to get the deal done.
Cons
However, bad outcomes can occur when powering through the big points (and punting on the thornier issues). This issue is especially exacerbated when the parties are working under different expectations moving towards the deal point.
What Strategy Should You Choose?
Like many things in life and business, the best strategy in negotiating your LOI should hinge upon your goals. Consider these factors:
- How fast do you need the deal done?
- How sophisticated are the parties?
- How complex is the transaction?
Ironing out your goals and using them as a guide will help you choose the right path. If you’re unclear or hesitant about pulling the trigger on a strategy, let’s talk it over. With over a decade of experience in helping doctors transition their practices, we’ll be able to identify the plan that’s best for your objectives. Schedule a free call — we’d be happy to help.
