Letter of Intent Template for Buying a Coffee Shop

Purchase Price and Valuation Basis

Establishes the proposed acquisition price, the valuation methodology used to arrive at it, and how the price may be adjusted after due diligence. For coffee shops, price is typically expressed as a multiple of Seller's Discretionary Earnings (SDE), ranging from 2x to 3.5x depending on lease quality, revenue consistency, and operational independence from the owner.

💡 Anchor the SDE multiple to documented, verifiable earnings — not the seller's verbal estimate of add-backs. Coffee shops with heavy cash sales and inconsistent bookkeeping often show SDE that cannot be fully validated. Build in an explicit price-reduction right if POS data does not reconcile with reported revenue. If the seller claims owner add-backs exceeding 30% of gross revenue, scrutinize each line item carefully before committing to a price.

Asset Purchase Structure and Included Assets

Defines whether the transaction is a stock sale or asset sale (virtually always an asset sale for independent coffee shops), and enumerates the specific assets being acquired — including equipment, inventory, FF&E, leasehold improvements, recipes, supplier relationships, social media accounts, and the trade name.

💡 Create a detailed equipment schedule as an exhibit to the LOI. Coffee shop equipment is the primary hard asset in the deal and often has significant undisclosed maintenance deferred. Explicitly list the espresso machine make, model, and year — a La Marzocca or Synesso worth $15K–$25K new is very different from an aging entry-level machine. Including loyalty program data and social media accounts in the asset list is critical and frequently overlooked by first-time buyers.

Lease Assignment and Landlord Consent Contingency

Addresses the single highest-risk element of any coffee shop acquisition: the assignment of the existing commercial lease to the buyer. Without an assignable lease with acceptable remaining term, the deal cannot close and SBA financing will not be approved. This section should be treated as a hard contingency.

💡 Do not waive the lease contingency under any circumstances. Confirm directly with the landlord — not just the seller — whether the lease is assignable and whether the landlord will consent to the specific buyer. Request a copy of the full lease within 48 hours of LOI execution. Review rent escalation clauses, use restrictions, and personal guarantee requirements carefully. SBA lenders will require the lease to run concurrent with the loan term, typically 10 years for a 7(a) loan, so renewal options matter significantly.

Due Diligence Period and Access

Establishes the length of the due diligence period, what information and access the buyer is entitled to, and how confidentiality will be maintained. For coffee shops, due diligence must include POS system access, supplier contracts, health inspection records, and equipment maintenance logs.

💡 POS data access is non-negotiable. If a seller refuses to provide raw POS exports — not just summary reports — treat this as a serious red flag for cash skimming or inflated revenue claims. Cross-reference POS totals against merchant processing statements and bank deposits to identify undeposited cash. Request hour-by-hour transaction data to identify peak and slow periods and validate the staffing model. Equipment inspection by a qualified technician should occur within the first two weeks of the due diligence period.

Purchase Price Allocation

Outlines how the total purchase price will be allocated across asset categories for tax and accounting purposes. Allocation affects both the buyer's depreciation schedule and the seller's tax treatment at closing.

💡 Buyers prefer allocating more value to depreciable assets like equipment (shorter depreciation period) rather than goodwill (15-year amortization). Sellers generally prefer the opposite for tax reasons. The covenant not to compete allocation is particularly important in coffee shop deals given the owner's community relationships — a well-structured non-compete covering a 5-mile radius for 3–5 years protects the buyer's goodwill. Negotiate this in the LOI to avoid a last-minute dispute at closing.

Seller Financing and Earnout Terms

Defines any seller-held note or earnout structure, which is common in SBA-financed coffee shop deals where the seller carry note serves as the buyer's equity injection. Outlines the note amount, interest rate, repayment term, and any conditions tied to post-closing performance.

💡 SBA lenders require seller notes used as equity injection to be on full standby for the first 24 months, meaning no principal or interest payments to the seller during that period. Confirm this structure with your SBA lender before the LOI is signed. Earnouts are contentious in coffee shop deals because buyers control post-closing operations and sellers distrust reported revenue. If an earnout is included, tie it to POS-documented gross revenue with a neutral third-party verification right, not to net income which is easily influenced by buyer decisions.

Exclusivity and No-Shop Provision

Prevents the seller from marketing the business or entertaining competing offers during the due diligence period. This is a standard protective provision for buyers who invest significant time and money in due diligence.

💡 Forty-five days is the standard exclusivity window for coffee shop deals given the complexity of lease assignment and SBA financing timelines. If the landlord consent process is slow, request a 60-day exclusivity period upfront. Sellers sometimes resist long exclusivity periods — frame it as protecting both parties from wasted effort if the landlord does not consent. Do not sign an LOI without an exclusivity provision; it is the primary value of the document for a buyer.

Transition and Training Period

Addresses the seller's obligation to provide post-closing training and transition support, which is especially critical in owner-operated coffee shops where the seller may be the primary relationship holder with staff, key customers, and suppliers.

💡 Thirty days is a minimum — push for 45–60 days if the seller is the sole barista or primary customer-facing presence. The transition period is where most value transfer happens in a coffee shop deal. Document the specific tasks the seller must complete during transition — particularly introductions to corporate catering accounts, key regulars, and specialty suppliers. Avoid structures where the seller's transition payment is deferred; it reduces motivation to show up and assist effectively.

Confidentiality

Binds both parties to maintain the confidentiality of deal terms, financial information, and the existence of the transaction. Confidentiality is especially important for coffee shops where staff and customer awareness of a pending sale can cause significant operational disruption.

💡 Staff attrition upon learning of a pending sale is one of the most common deal killers in coffee shop acquisitions. Experienced baristas and shift leads who are loyal to the owner may resign when they learn the business is changing hands. The confidentiality clause gives you leverage if the seller prematurely discloses the deal. Plan a coordinated staff communication strategy with the seller for the week of closing — this should be explicitly addressed in the transition plan.