Buying or selling a small business is one of the most significant financial events in a person's life — and one of the most commonly misunderstood legal processes. Most buyers and sellers approach the transaction with a handshake deal in mind and are surprised to discover how structured, document-heavy, and lengthy the actual process turns out to be.

I've been on both sides of this table. I acquired D.P. Dough in 2012, grew it for seven years, and sold it in 2019. I'm currently under contract to acquire another business. In my legal practice, I represent both buyers and sellers. Here's the big picture of how it actually works.

Step 1: The Letter of Intent (LOI)

The LOI is the first formal document in most business transactions. It's a preliminary agreement — usually 1–5 pages — that outlines the key deal terms before the full purchase agreement is drafted.

A typical LOI covers: purchase price and payment structure, whether the deal is an asset or stock sale, proposed closing timeline, due diligence period, exclusivity (preventing the seller from talking to other buyers), and confidentiality obligations.

Most LOIs are non-binding on substantive terms but binding on confidentiality and exclusivity. Here's what most people don't understand: what you agree to in the LOI sets the baseline for everything that follows. Sellers almost never get better terms in the purchase agreement than they got in the LOI. The LOI matters more than it looks. Get legal counsel on it.

Step 2: Due Diligence

After the LOI is signed, the buyer typically has a 30–60 day period to investigate the business. A thorough due diligence process covers:

  • Financial review: Tax returns (3–5 years), P&L statements, balance sheets, accounts receivable aging, cash flow analysis
  • Legal review: Corporate documents, contracts, leases, employment agreements, pending litigation, intellectual property
  • Operational review: Key employees, supplier relationships, customer concentration
  • Regulatory review: Licenses, permits, zoning, franchise compliance

For sellers, how you organize and respond to due diligence requests signals how well-run your business is — and can affect both the final price and the buyer's confidence in closing.

Step 3: The Purchase Agreement

The purchase agreement is the main legal contract governing the transaction. It's typically 20–60 pages and covers all economic terms plus legal protections for both parties post-closing.

One of the most important decisions: asset sale vs. stock sale.

  • Asset Sale: The buyer purchases specific assets but not the legal entity itself. The seller retains the entity and its liabilities. Most buyers prefer this structure.
  • Stock/Membership Interest Sale: The buyer acquires the entity itself — including all liabilities, known and unknown. Sellers often prefer this for tax reasons.

The purchase agreement also contains representations and warranties — statements by both parties about the business and the transaction. Breaches of reps and warranties can create post-closing liability. Negotiating appropriate limits on that exposure is critical work for an experienced M&A attorney.

Step 4: Closing

Closing is the moment when money and legal ownership change hands. It requires careful coordination: final purchase price adjustments, transfer of business licenses and permits, landlord consent and lease assignment, franchisor consent (if applicable), key employee retention arrangements, and simultaneous execution of all closing documents.

An attorney managing the closing process is invaluable here. Coordination failures at closing can delay close or create disputes that cost far more to resolve than the legal fees would have been.

Step 5: Post-Close Integration

The deal closing is not the end of the legal relationship. In most transactions, the seller's representations and warranties survive closing for 12–24 months. If the buyer discovers the seller misrepresented material facts, they may have an indemnification claim.

Post-close for the buyer involves transitioning vendor relationships, employee onboarding, customer communication, and fulfilling any transition service obligations from the seller. Post-close for the seller involves any transition assistance agreed to in the purchase agreement and compliance with non-compete provisions.

The quality of both parties' attorneys significantly affects how smoothly the post-close period unfolds. Well-drafted agreements minimize ambiguity; poorly drafted ones create disputes.