After an LOI is signed, the acquisition moves from an outline to a verification and documentation process. The buyer begins full due diligence, the lender advances underwriting, counsel starts legal review and definitive documents, and both sides work toward the closing conditions set out in the LOI. The exact sequence varies, but the first week usually determines whether the deal develops momentum or loses it.
In this guide
- The short answer: diligence, financing, and legal work begin
- First 48 hours: turn the LOI into a closing plan
- Week 1: open the data room and test readiness
- Weeks 1 to 3: financial diligence and quality of earnings
- Weeks 1 to 4: legal, operational, and commercial diligence
- In parallel: lender underwriting and financing approval
- Weeks 2 to 5: negotiate the purchase agreement
- Resolve working capital and the funds flow
- What happens when diligence finds a problem?
- Final week: satisfy conditions and prepare to operate
- A practical post-LOI checklist
The short answer: diligence, financing, and legal work begin
Signing the LOI usually starts the buyer's protected period to investigate the target and negotiate final documents. The seller opens a data room or begins fulfilling requests. The buyer's accountant or quality of earnings provider tests the financial story. Attorneys review legal risks and start the asset purchase agreement or stock purchase agreement. The lender works through underwriting, and operational specialists examine the issues that matter to the specific business.
These workstreams are connected. A financial finding can change the purchase price or working capital target. A contract review can reveal that a key customer or lease requires consent. Lender conditions can affect structure and timing. The buyer needs one coordinated process rather than a collection of separate advisor reports.
First 48 hours: turn the LOI into a closing plan
Start by rereading the signed LOI and extracting every date, condition, assumption, and deliverable. Build a simple tracker with the workstream, owner, request date, status, decision needed, and deadline. The exclusivity expiration should be visible because it defines the time available to resolve issues and complete documentation.
Confirm the buyer's core team and communication rhythm. That often includes acquisition counsel, the lender, a financial diligence provider, an insurance advisor, and operational or industry specialists as needed. Decide who communicates with the seller or broker so requests are organized and the relationship does not become noisy.
- Send the initial information request list
- Schedule management and advisor kickoff calls
- Deliver lender materials and confirm underwriting requirements
- Identify third-party consents and long-lead items
- Create a decision log for material findings
Week 1: open the data room and test readiness
The first week shows whether the proposed timeline is realistic. The seller should begin providing financial statements, tax returns, bank statements, payroll information, contracts, corporate records, licenses, insurance policies, customer data, and other materials appropriate to the business.
Do not measure progress by the number of files uploaded. Measure whether the buyer can answer the questions that matter. Missing monthly financials, inconsistent entity names, incomplete customer data, or contracts that cannot be located are early signals that the process may need more time or a different scope.
If information is delayed, document what remains open and address the effect on timing early. Waiting until the final days of exclusivity to explain that diligence could not be completed weakens the buyer's ability to ask for an extension.
Weeks 1 to 3: financial diligence and quality of earnings
Financial diligence tests whether the earnings, cash flow, and operating assumptions behind the offer are supported. For many SMB acquisitions, the work includes revenue testing, add-back review, customer concentration, margin analysis, payroll normalization, working capital, debt-like items, and comparison of tax returns, financial statements, and source records.
The objective is not merely to find accounting errors. It is to understand the durable earnings available to operate the business and service acquisition debt. A quality of earnings analysis can also identify where the LOI economics need refinement, such as a different working capital target, a seller note, a holdback, or a price adjustment tied to a verified change in earnings.
Share material findings with the rest of the deal team. Counsel and the lender may need to respond to the same issue from different angles.
Weeks 1 to 4: legal, operational, and commercial diligence
Legal diligence examines ownership, authority, contracts, litigation, employment matters, intellectual property, permits, compliance, and liabilities that may transfer or affect closing. Operational diligence tests whether the company can continue serving customers after ownership changes. Commercial work looks at customer concentration, market position, churn, pricing, and the sustainability of demand.
The right scope depends on the business. A contractor may require close review of licensing, bonding, project backlog, and job costing. A healthcare company may require regulatory and billing expertise. A software business may require technical, cybersecurity, and intellectual-property review. The LOI should create room for the work that actually determines whether the buyer wants this particular company.
In parallel: lender underwriting and financing approval
The lender will usually request its own package of historical financials, projections, ownership information, collateral details, purchase documents, and borrower materials. The bank's review is essential, but it is designed primarily to evaluate credit and repayment risk. It should not replace the buyer's broader assessment of earnings quality, operations, legal exposure, and post-close needs.
Keep the lender informed when material terms change. A revised seller note, earnout, purchase price, equity contribution, or working capital assumption may affect underwriting. Financing surprises late in the process can consume the same time the parties need for legal drafting and closing conditions.
Weeks 2 to 5: negotiate the purchase agreement
Counsel typically uses the LOI and diligence findings to draft and negotiate the definitive purchase agreement. The document translates the proposed deal into enforceable obligations and adds the detail the LOI intentionally left open.
Expect negotiation around representations and warranties, covenants, indemnification, escrows, closing conditions, purchase-price adjustments, definitions, disclosure schedules, and post-closing obligations. If an LOI term was vague, this is often where the disagreement becomes visible. That is why buyers should identify major ambiguities before signing rather than assuming drafting will solve them automatically.
Resolve working capital and the funds flow
The parties may need to agree on a normalized working capital target, the accounts included in the calculation, the estimate delivered before closing, and the post-closing true-up process. They also need a funds-flow statement showing where the buyer's money goes: seller proceeds, debt payoff, transaction expenses, escrow, lender fees, taxes, and other closing payments.
These calculations connect the headline purchase price to the cash actually required at closing. Buyers should update their sources-and-uses model as the deal develops rather than waiting for the final week to discover an additional funding need.
What happens when diligence finds a problem?
Most diligence processes produce issues. The key question is whether a finding changes value, structure, legal protection, timing, or the buyer's willingness to own the business. Classify findings by decision impact instead of treating every open item as equally important.
A lower verified earnings level may support a price change. Customer concentration might be addressed through a holdback, earnout, or transition plan. A known liability may require an escrow, indemnity, payoff, or pre-closing cure. A permit that cannot transfer may change the closing timeline. Some findings cannot be priced or protected against and should cause the buyer to stop.
When terms need to change, explain the evidence and connect the proposed solution to the specific risk. That creates a more credible conversation than reopening the deal with a broad demand for a discount.
Final week: satisfy conditions and prepare to operate
As closing approaches, the parties complete signatures, approvals, consents, payoff letters, schedules, lender conditions, insurance, entity formation, and the final funds flow. The buyer should also have a day-one operating plan covering cash access, payroll, banking, customer and employee communications, systems, vendor continuity, and seller transition responsibilities.
Closing is not the finish line for the acquired business. It is the point where the buyer becomes responsible for delivering on the assumptions made during search, negotiation, and diligence. The most useful deal process leaves the buyer with both signed documents and a practical plan for the first days of ownership.
A practical post-LOI checklist
Use this as a starting sequence and tailor it to the transaction. Complex, regulated, or distressed businesses may require additional workstreams and a different timeline.
- Convert the LOI into a dated project plan
- Kick off financial, legal, lender, and operational work in parallel
- Track missing information and its effect on the exclusivity period
- Maintain one list of material findings and decisions
- Update the purchase model and sources and uses as facts change
- Raise value-changing issues before drafting and timing become compressed
- Confirm every closing condition and third-party consent
- Prepare the day-one ownership and cash plan before signing
Frequently asked questions
What is the first step after an LOI is signed?
The buyer should turn the signed LOI into a coordinated plan: confirm deadlines, launch the information request, engage the lender and advisors, identify long-lead consents, and assign an owner to each workstream.
How long does due diligence take after an LOI?
The timeline varies with deal complexity, financing, record quality, seller responsiveness, and specialist reviews. Buyers should base the schedule on the actual work required and the exclusivity period in their LOI rather than rely on a universal number.
Can a deal fall apart after the LOI is signed?
Yes. A deal may stop because of diligence findings, financing, legal issues, changed economics, failed consents, or a breakdown in negotiations. The buyer's rights and costs depend on the LOI and other agreements, including any binding exclusivity, confidentiality, or expense provisions.
When is the purchase agreement drafted?
Drafting often begins while diligence and lender work are underway. The timing depends on the deal, but the purchase agreement should reflect the agreed LOI framework and material facts uncovered during diligence.
Does the bank perform due diligence for the buyer?
The lender performs important credit and underwriting work, but its objective is to evaluate repayment and loan risk. Buyers still need their own financial, legal, operational, commercial, and other diligence to decide whether the business is worth owning on the proposed terms.
