Letter of Intent Template for Buying or Selling a Dance Studio

1. Parties and Transaction Overview

Identifies the buyer, seller, and the legal entity or assets being acquired. For dance studios, specify whether this is an asset purchase (most common) or stock/membership interest purchase of the operating LLC or corporation.

💡 Asset purchases are strongly preferred for dance studio acquisitions because they allow the buyer to leave behind unknown liabilities and establish a clean cost basis for equipment and leasehold improvements. Sellers may push for a stock sale for tax reasons — if so, buyers should request a tax indemnification and thorough rep-and-warranty coverage. Confirm early whether the studio operates as a sole proprietorship, LLC, or S-Corp, as this affects deal structure and SBA eligibility.

2. Purchase Price and Valuation Basis

States the proposed purchase price, the financial metric it is based on (typically trailing 12-month EBITDA or Seller's Discretionary Earnings), and any adjustments expected after due diligence review.

💡 Dance studio multiples in the lower middle market typically range from 2.5x–4.5x SDE. Studios with high auto-pay enrollment, low owner-dependency, and a long-term lease command the higher end. Studios where the owner teaches most classes, revenue is seasonal, or the lease is month-to-month should trade at 2.5x–3.0x or lower. Buyers should add back legitimate owner perks (owner salary above market, personal vehicle, cell phone) but scrutinize any claimed add-backs carefully — instructors cannot be paid below market to manufacture higher SDE.

3. Deal Structure and Financing

Describes how the purchase price will be funded, including any SBA loan, buyer equity injection, seller note, and earnout component tied to post-close performance.

💡 SBA 7(a) financing is widely used for dance studio acquisitions and typically requires a 10–20% buyer equity injection. SBA lenders will require the seller to remain on a standby seller note for the first 24 months in most cases. The earnout tied to student retention is a powerful alignment mechanism — tie it to verifiable metrics in the billing software (e.g., active students paying tuition) rather than revenue, since pricing changes can obscure headcount trends. Sellers should push to have the earnout measured on a rolling basis rather than a single snapshot to account for normal seasonal dips.

4. Earnout and Student Retention Provisions

Defines how post-close earnout payments are calculated, what triggers payment, and how student retention is measured and verified.

💡 This is one of the most negotiated sections in any dance studio LOI. Sellers will argue that retention is partly outside their control post-close and will push for higher base price with smaller earnout exposure. Buyers should counter that the earnout is precisely the mechanism that incentivizes a meaningful seller transition — it aligns interests. Specify in the LOI that the seller's earnout is conditioned on their completing the agreed transition period and not soliciting students or staff. Also define 'active student' clearly — does a student on a seasonal pause count? Does a family that upgrades classes count as retained even if a sibling dropped?

5. Lease Assignment and Real Estate

Addresses the critical issue of the studio's physical location, including how and when landlord consent for lease assignment will be obtained, and what happens if it cannot be obtained.

💡 Lease assignment is a make-or-break issue for dance studio acquisitions. A studio with 18 months left on its lease is a significantly riskier acquisition than one with 5+ years remaining. Buyers should require as a closing condition — not merely a due diligence item — that the landlord has consented in writing to assignment or that a new lease is executed. If the landlord requires a personal guarantee from the buyer, try to limit it to the first 1–2 years and negotiate a release upon demonstrating financial performance. Also verify the rent-to-revenue ratio: rent exceeding 15–18% of gross revenue is a yellow flag for a dance studio.

6. Due Diligence Period and Access

Establishes the timeframe and scope of buyer's due diligence investigation, including financial records, student data, instructor agreements, and facility inspection.

💡 45–60 days is standard for a dance studio acquisition with SBA financing. Buyers should use the first two weeks to review financials and identify any red flags before committing to SBA lender fees. Pay particular attention to the billing software data — it is the single most reliable source of truth about enrollment trends, seasonality patterns, and revenue per student. Look for unexplained enrollment dips that coincide with instructor departures or facility issues. Sellers should resist providing student contact information or detailed family data until a non-disclosure agreement is firmly in place and the LOI is signed.

7. Exclusivity and No-Shop Period

Prevents the seller from marketing the business or negotiating with other buyers during the due diligence period.

💡 Exclusivity is standard and sellers should expect it. 45 days is reasonable; buyers should avoid pushing for 90+ days as it signals lack of readiness and may frustrate motivated sellers. If the seller is working with a business broker, the broker will typically have negotiated a listing agreement that allows them to continue showing the business until an LOI is countersigned — confirm that exclusivity begins from full execution, not from the date the buyer submits their LOI draft.

8. Transition and Training Period

Defines the seller's obligations to remain involved post-close to introduce the buyer to families, staff, and community partners, and to transfer operational knowledge.

💡 The transition period is arguably the most important post-close protection in a dance studio deal. Student and family loyalty is often personal, and a warm, well-communicated handoff from the founder dramatically increases the probability of retention. Buyers should push for 90 days minimum; sellers who are burned out may resist. Consider tying a portion of the seller note payment or earnout to completion of a satisfactory transition period as a soft incentive. Also discuss the communications strategy early — some sellers want to be involved in drafting the announcement letter to families, which is generally a good sign.

9. Non-Compete and Non-Solicitation

Prohibits the seller from opening a competing studio, teaching private lessons to enrolled students, or recruiting staff away from the studio for a defined period after closing.

💡 Non-competes are essential in dance studio deals because the seller often has deep personal relationships with every family in the studio. A 3-year, 10-mile radius is standard and generally enforceable in most states. If the seller also teaches privately outside the studio, address private lessons explicitly — some sellers will want a carve-out for adult recreational students or students at other schools they have no connection to. Key instructors should also sign non-solicitation agreements as part of any instructor employment formalization done prior to closing.

10. Conditions to Closing

Lists the specific conditions that must be satisfied before either party is obligated to complete the transaction.

💡 The material adverse change clause and the enrollment floor condition are especially important for dance studios. Between LOI signing and closing (typically 60–120 days with SBA financing), enrollment can shift meaningfully if word gets out about the sale. Buyers should request the seller keep the sale confidential from families and most staff until closing communications are ready. A leak that triggers instructor departures or family attrition before closing is one of the most common and costly complications in studio transactions.