Why Buying a Business Isn’t Like Buying a House
Earlier this year, I was working on a deal where one of the buyers started getting visibly frustrated. We were drafting a Letter of Intent (LOI), and he kept asking me why I was making this so complicated.
From his perspective, the process felt like overkill. He came from real estate, where you throw out an offer, the seller counters or accepts, and that’s that. He didn’t understand why we were trying to hash out so many key terms upfront. Buyer has money, seller wants money, sign a contract, and everyone’s happy.
And honestly, it’s a fair concern. Why does selling a business require so much more complexity than selling a house?
I realized it’s worth unpacking why business sales are more nuanced and why a more detailed LOI can actually save time, money, and headaches down the road, even for small deals.
Why Is Selling a Business More Complicated?
At a glance, selling a house and selling a business look similar. A buyer, a seller, a price, a contract. But that’s where the similarities end. Business sales are far more complex, with more moving parts and significantly more risk. They require careful structuring and negotiation to keep the deal on track and ultimately get it across the finish line.
So what makes them so different? Let’s break it down.
You’re Not Just Selling Physical Stuff
In real estate, you’re selling something concrete: land, walls, square footage. There’s also plenty of public data from comparable sales to support the price. And because housing markets tend to move gradually, buyers can rely on a relatively stable baseline of value.
With a business, things aren’t nearly as predictable.
Yes, there may be tangible assets like equipment, inventory, or a lease, but the bulk of the value is usually in intangibles: the people, the systems, the brand reputation, customer relationships, and most importantly, cash flow.
In essence, buyers are purchasing a cashflow engine and betting on its ability to keep running. That introduces a different level of uncertainty. Risk is baked into any deal, but most buyers will do everything they can to reduce it. And the more red flags they encounter, the more likely they are to walk.
That’s where perception becomes critical. When most of the value is intangible, risk is subjective. What seems like business-as-usual to a seller might be a dealbreaker for a particular buyer. For example, maybe you know the business could be taught to anyone with a half-decent IQ, but if your processes aren’t documented, some buyers will view that as a major liability.
Managing that perceived risk, and helping both sides find middle ground, is where a good broker or intermediary adds real value.
The Seller Rarely Disappears Overnight
Because so much of a business’s value is tied to intangibles, relationships, knowledge, and systems, the seller rarely walks away the day the deal closes. In most cases, they’ll play a critical role in transitioning the business to the new owner and often stay involved in some kind of training or consulting capacity for months (or even years) afterward.
On top of that, many deals include a vendor note, a portion of the purchase price that’s paid out over time. This further deepens the relationship between buyer and seller and keeps the seller financially tied to the business’ future existence and ability to pay that debt.
All of this adds layers to the deal. Transition timelines, training commitments, and consulting agreements all need to be carefully negotiated and documented as part of the overall deal structure, because they’re often just as important as the purchase price itself.
Due Diligence Is Broader and Deeper
In real estate, due diligence is relatively quick. Subject removal typically takes about a week. But in small business sales, it’s a whole different game. The due diligence period often stretches to 60 days or more.
Why? Because buyers aren’t just checking the foundation or plumbing. They’re buying future cash flow, customer relationships, and institutional knowledge. These are harder to verify, and the risks are greater.
Buyers (and their advisors) need time to dig into the financials, customer concentration, employee contracts, supplier relationships, regulatory issues, and more. They’re looking to confirm that what’s been presented holds up and to uncover any red flags before things go too far.
The goal isn’t just to validate numbers, it’s to eliminate as much risk as possible before writing the final cheque.
Why a Detailed LOI Actually Saves Time
Because of all the complexities above, we generally prefer to use fairly detailed Letters of Intent (LOIs) when structuring a deal. Yes, most of an LOI is technically non-binding, meaning either party can walk away during diligence, but that doesn’t mean it should be taken lightly. A loose LOI often leads to misaligned expectations, deal fatigue, and wasted legal fees down the line.
Personally, I’d much rather surface potential deal-breakers early than risk them derailing things later. If a seller has no interest in supporting the buyer post-close, and that support is critical to the buyer’s success, it’s better to discover that now than after weeks of legal back-and-forth and sunk costs.
A well-structured LOI is more than just a formality, it’s a filter. It helps both parties identify alignment (or misalignment) before investing serious time and money into the deal. The goal isn’t to lock in every detail, but to set clear expectations and avoid surprises down the road.
Takeaways for Buyers (and Sellers)
If you’re a buyer, treat the LOI like a working handshake. A serious, structured, agreement based on the information you have at the time. If you end up revisiting your offer without clear justification from due diligence, you risk eroding trust and potentially killing the deal. The LOI sets the tone and sticking to it (unless something material changes) goes a long way in building credibility with the seller.
If you’re a seller, know that upfront alignment isn’t overkill, it’s protection. Clarifying expectations early on will save time, money, and a lot of unnecessary back-and-forth in legal fees later on.
For both sides, investing in clarity at the LOI stage gives the deal its best shot at actually closing, and closing well.
I’m not sure that buyer was ever fully convinced there’s a real difference between selling a house and selling a business. And to be fair, sometimes it does feel like we’re overcomplicating things. But more often than not, the structure exists for a reason. We’ve seen countless deals where tensions flare during the purchase agreement stage and it’s the LOI that brings things back on track.
At the end of the day, buying a house is a transaction. Buying a business is a relationship. And relationships work best when everyone’s clear on what they’re signing up for.
