Letter of Intent Template for Acquiring a Catering Company

Parties and Transaction Overview

Identifies the buyer, seller, and the specific legal entity or assets being acquired. In catering acquisitions, most deals are structured as asset purchases rather than stock purchases to limit buyer exposure to undisclosed liabilities such as health code violations, pending vendor disputes, or prior employment claims.

💡 Sellers may prefer a stock sale for tax reasons — specifically to achieve long-term capital gains treatment on goodwill. Buyers should resist this unless indemnification protections are robust. If a stock sale is entertained, require a full representations and warranties schedule covering health department compliance history and any outstanding litigation.

Purchase Price and Valuation Basis

States the proposed total consideration and the SDE multiple or methodology used to arrive at the price. Catering company valuations hinge heavily on the quality and predictability of revenue — a business with 60% recurring corporate contracts commands a meaningfully higher multiple than one dependent on one-time wedding bookings.

💡 Press the seller to disclose the full add-back schedule before signing the LOI. Common add-backs in catering businesses include owner meals charged to food cost, personal vehicle use, family member compensation, and one-time equipment purchases. Do not anchor your multiple to EBITDA before verifying that food cost percentages and labor ratios are consistent year-over-year — seasonal distortions are common.

Deal Structure and Financing Contingency

Outlines how the purchase price will be funded, including the buyer equity injection, SBA 7(a) loan amount, seller note, and any earnout component. SBA financing is widely available for catering company acquisitions meeting the lender's cash flow coverage requirements, typically 1.25x DSCR.

💡 SBA lenders will require a business valuation, equipment appraisal, and often a lease assignment or landlord waiver for the commercial kitchen. Flag the kitchen lease early — if it has fewer than 10 years remaining including options, your lender may require a lease extension before funding. Seller notes are frequently required by SBA lenders to bridge the gap between the appraised value and the purchase price, especially when goodwill is a large component.

Earnout Provision — Corporate Contract Retention

Defines a performance-based payment tied to the retention of key corporate or recurring event clients post-close. This is one of the most heavily negotiated terms in catering acquisitions because so much business value is tied to relationships the seller has built personally over years.

💡 Define 'retained revenue' precisely — it should measure actual invoiced revenue from named accounts, not total revenue, to prevent the seller from gaming the metric by booking new one-time events. Require the seller to provide written introductions to all corporate accounts within 30 days of closing. Cap the earnout period at 24 months maximum to maintain buyer flexibility to restructure accounts or expand into new verticals post-acquisition.

Key-Person and Non-Compete Provisions

Addresses the risk that the departing owner-chef or head caterer is the primary relationship holder for clients, vendors, and staff. This is the single most common value risk in catering acquisitions and must be handled explicitly in the LOI before due diligence begins.

💡 Many sellers will resist a long non-compete, particularly owner-chefs who view their culinary identity as their primary asset. Frame the non-compete around 'the clients and vendor relationships of this specific business' rather than the seller's ability to cook or teach — this makes it more legally defensible and more palatable to the seller. If the seller refuses a non-compete, reprice accordingly or increase the earnout contingency.

Deposit and Forward Bookings

Clarifies how pre-paid event deposits, confirmed future bookings, and outstanding catering contracts will be treated at closing. This is a unique consideration in catering acquisitions that standard LOI templates rarely address.

💡 Audit the forward bookings schedule during due diligence — do not take it at face value. Request actual signed contracts, not just a spreadsheet. Confirm that deposit amounts match bank records. Events with complex setups, unusual venues, or thin margins should be flagged for renegotiation or repricing before closing if the buyer is inheriting execution risk.

Due Diligence Period and Access

Establishes the duration and scope of the buyer's due diligence investigation, including access to financial records, health department inspection history, equipment, client contracts, and staff information.

💡 In catering businesses, pay particular attention to the health department inspection history. A single critical violation is a yellow flag; a pattern of violations or a temporary closure is a red flag that may affect licensure transferability. Also request proof of current food handler certifications for all kitchen staff — many buyers discover lapsed certifications only after closing, creating immediate compliance exposure.

Exclusivity and Confidentiality

Grants the buyer an exclusive negotiation period and requires the seller to maintain deal confidentiality — critical in catering businesses where client relationships and staff morale can be disrupted by rumors of an ownership change.

💡 Confidentiality is especially sensitive in catering businesses because staff — particularly head chefs and event coordinators — are highly mobile and may leave if they learn about a pending sale. Agree with the seller on a specific communication plan for how and when key employees will be informed. Premature disclosure to staff or corporate clients can destabilize the business before closing and damage the earnout baseline.