Letter of Intent Template for Buying a Cosmetology School

Parties and Transaction Overview

Identifies the buyer, seller, and the specific legal entity or assets being acquired. For cosmetology schools, it is critical to specify at the outset whether this is an asset purchase or a stock purchase, as the structure has direct implications for accreditation change-of-ownership treatment and Title IV continuity. Most deals are structured as asset purchases to limit buyer exposure to legacy regulatory liability.

💡 Sellers often push for a stock sale to simplify the transaction and avoid asset-by-asset transfer of state licenses. Buyers should resist this unless they have completed a thorough regulatory liability review, as a stock purchase inherits all prior Title IV findings, cohort default rate history, and unresolved accreditor sanctions. If a stock sale is acceptable, the purchase price should reflect the additional regulatory tail risk.

Purchase Price and Valuation Basis

States the proposed purchase price, the valuation methodology used to arrive at it, and the earnings metric on which the multiple is applied. Cosmetology school valuations typically apply a 2.5x–4.5x multiple to trailing twelve-month EBITDA, adjusted for owner compensation addbacks, Title IV refund liabilities, and non-recurring accreditation expenses. The LOI should specify which adjustments are included in the normalized EBITDA figure so there is no ambiguity at closing.

💡 Sellers frequently dispute the addback of their own compensation, particularly when they serve as the director of record, arguing it inflates EBITDA artificially since a replacement director will cost the business money. Buyers should budget $60,000–$90,000 for a credentialed replacement director and include that cost in the normalized EBITDA before applying the multiple. Sellers who are not the director of record but draw above-market salaries in other roles should expect those excess amounts to be added back without dispute.

Deal Structure and Financing

Outlines how the purchase price will be funded, including SBA 7(a) loan proceeds, buyer equity injection, and any seller carryback or seller note component. Cosmetology school deals frequently involve SBA financing given the asset-light, cash-flowing nature of the business. The LOI should specify the anticipated financing structure so the seller understands timeline expectations and can plan around the SBA's 60–90 day approval process.

💡 Sellers uncomfortable with seller notes should understand that SBA lenders frequently require them as a condition of approval, particularly for schools where the seller is the key operator. The standby period — during which Seller receives no payments on the note — is non-negotiable with most SBA lenders and should be disclosed upfront to avoid seller surprise. For deals including earnout components, ensure the seller note and earnout payments are clearly separated in the LOI to avoid confusion about when each obligation is triggered.

Earnout Structure

Defines any contingent payment tied to post-closing performance, typically enrollment retention and Title IV compliance metrics. Earnouts in cosmetology school deals are common because enrollment can shift rapidly after ownership change and Title IV status can be disrupted during the Department of Education's provisional certification review. A well-structured earnout aligns seller incentives with a clean transition rather than punishing the buyer for regulatory disruptions outside their control.

💡 Sellers should push for earnout metrics tied only to factors within their control during a transition assistance period — not to events triggered by buyer operational decisions post-closing. Buyers should resist earnout structures that reward enrollment retention without also conditioning payment on accreditation standing, since a school can temporarily maintain enrollment while quietly falling out of compliance in ways that devastate value. Both parties should agree in advance on a third-party enrollment audit mechanism to prevent disputes over headcount calculations.

Regulatory and Accreditation Contingencies

Establishes the conditions that must be satisfied before closing can occur related to accreditor change-of-ownership approval, Department of Education notification, and state board licensing transfer. This is the most deal-specific section of a cosmetology school LOI and the one most commonly omitted in generic templates, creating catastrophic ambiguity later in the transaction.

💡 Sellers sometimes resist making deal closing contingent on accreditor approval because the process can take 60–120 days and they fear the buyer will use the delay to renegotiate. Buyers should hold firm — closing before accreditor approval is obtained can result in the school operating without valid accreditation, which triggers an automatic loss of Title IV eligibility and can decimate enrollment overnight. If the seller insists on closing before accreditor approval, the buyer should escrow a meaningful portion of the purchase price — 20–30% — pending final accreditation confirmation.

Due Diligence Scope and Timeline

Specifies the duration of the due diligence period, the categories of information Seller must provide, and any limitations on Buyer access to students, staff, or regulatory files. Cosmetology school due diligence is specialized and time-intensive due to the volume of regulatory documentation involved, including accreditor correspondence, Department of Education program review records, cohort default rate data, and state board inspection reports.

💡 Sellers should resist providing student-level data before an NDA is in place, as FERPA imposes restrictions on disclosure of student records to third parties without consent. A well-drafted NDA specific to educational institution acquisitions should be executed before any student enrollment or financial aid data is shared. Buyers should build at least 30 extra days into the due diligence period beyond what they think they need — regulatory document reviews almost always take longer than anticipated, particularly if accreditor correspondence reveals unreported issues that require follow-up inquiry.

Exclusivity and No-Shop

Grants the buyer an exclusive negotiating period during which the seller agrees not to solicit or entertain competing offers. For cosmetology school deals, exclusivity is particularly important because the regulatory due diligence process requires the seller's active cooperation, which sellers are unlikely to provide fully if they are simultaneously entertaining other buyers.

💡 Ninety days is the minimum exclusivity period that makes sense for a cosmetology school deal given that NACCAS change-of-ownership applications alone can take 45–60 days to process after submission. Sellers who push for shorter exclusivity periods — 30 or 45 days — are often doing so because they have another buyer in the background or are not fully committed to the process. Buyers should walk away from LOIs with exclusivity periods shorter than 60 days unless the accreditor pre-approval process has already been initiated.

Seller Representations and Warranties

Identifies the key representations Seller must make in the LOI regarding regulatory status, financial condition, and operational facts that will be elaborated upon in the definitive purchase agreement. Including preliminary representations in the LOI reduces the risk of discovering material misrepresentations only after the buyer has invested 60–90 days in due diligence.

💡 Sellers are sometimes reluctant to make cohort default rate and composite score representations in an LOI because they consider those metrics to be publicly available anyway. Buyers should insist on these representations because they create a contractual basis for terminating the LOI and recovering due diligence costs if the seller has misrepresented the school's regulatory standing. These representations should be repeated and expanded in the definitive purchase agreement with full indemnification backing.

Transition Assistance and Non-Compete

Outlines the seller's obligations to assist with the transition of operations, student relationships, staff, and regulatory approvals post-closing, as well as the geographic and temporal scope of the seller's agreement not to open or operate a competing cosmetology school. Transition assistance is particularly critical when the seller has served as the director of record or a key instructor.

💡 Sellers who are the director of record have additional leverage in this section because buyers genuinely need their cooperation with accreditor inspections, which sometimes include in-person interviews with the outgoing owner. This leverage can be used to negotiate a paid consulting arrangement beyond the standard transition period if the accreditor approval process extends beyond six months. Non-compete geography should reflect the school's actual enrollment draw area — often 15–30 miles in dense urban markets and 40–75 miles in rural or suburban markets — rather than a round number that a court might view as overbroad and decline to enforce.

Confidentiality and Binding Effect

Specifies which provisions of the LOI are legally binding and which are merely expressions of intent, and confirms the confidentiality obligations of both parties with respect to the proposed transaction. For cosmetology schools, premature disclosure of a pending sale can trigger student attrition, instructor departures, and accreditor scrutiny — all of which reduce value before closing.

💡 The binding nature of the exclusivity and confidentiality provisions is what gives the LOI its practical value in a cosmetology school deal. Buyers who fail to make these provisions explicitly binding have no recourse if the seller shops the deal to competitors or discloses the transaction to staff prematurely. Courts in most states will enforce these provisions even in an otherwise non-binding LOI as long as the language is unambiguous about their intended binding effect.