Letter of Intent Template for Acquiring an Epoxy Flooring Business

Parties and Business Description

Identifies the buyer entity, seller entity, and the specific business being acquired, including its legal name, primary operating location, and core service lines such as residential garage floor coatings, commercial warehouse epoxy systems, and industrial polyaspartic installations.

💡 Be specific about what is included. If the seller operates multiple LLCs — one for residential and one for commercial coatings — clarify which entity or entities are being acquired. This is common among owner-operators who split income for tax purposes. Confirm whether the transaction is an asset purchase or stock purchase early; most SBA lenders and buyers prefer an asset purchase to avoid inheriting legacy liability on warranty claims or subcontractor disputes.

Proposed Purchase Price and Valuation Basis

States the total consideration being offered, the valuation methodology used, and how seller's discretionary earnings (SDE) were calculated. Epoxy flooring businesses in the lower middle market typically trade at 2.5x–4.5x SDE depending on revenue mix, crew stability, and contract quality.

💡 Push the seller to provide a clear SDE recast before signing the LOI. Common add-backs in epoxy flooring include owner vehicle and fuel expenses, personal phone plans, owner health insurance, and one-time equipment purchases. Be cautious of add-backs tied to subcontractor costs that may need to shift to W-2 payroll post-close, as this directly impacts true profitability. If the trailing twelve months include an unusually large one-time commercial project — such as a full warehouse floor for a distribution center — adjust your SDE baseline to exclude it or weight a three-year average.

Deal Structure and Payment Terms

Details how the purchase price will be funded, including the buyer's equity injection, SBA 7(a) loan proceeds, seller financing amount, and any earnout component tied to post-close performance.

💡 Sellers of epoxy flooring businesses are often skeptical of earnouts because revenue is project-based and they lose control of sales after closing. Frame the earnout as upside protection for both parties — the seller gets rewarded if the business performs, and the buyer limits downside on a business where the owner was the primary estimator and salesperson. Seller notes in the 10–15% range are increasingly expected by SBA lenders as a signal of seller confidence. Tie the seller note release to crew retention and active warranty period expiration, not just a calendar date.

Assets Included in the Sale

Enumerates the key tangible and intangible assets being transferred, including grinding and surface preparation equipment, mixing and application systems, vehicles, material inventory, customer relationships, brand assets, and any commercial maintenance contracts.

💡 Request a detailed equipment list with purchase dates, hours of use where applicable, and estimated replacement value before or immediately after LOI signing. Grinders, shot blasters, and mixing systems represent $50,000–$200,000 in capital and are critical to operations. Aging or poorly maintained equipment that requires replacement within 12 months post-close should either be credited against the purchase price or replaced by the seller prior to closing. Separately identify any vehicles with outstanding loans, as these will affect the SBA lender's asset schedule.

Liabilities Assumed and Excluded

Clarifies which liabilities the buyer agrees to assume and which remain with the seller, with particular attention to warranty obligations on completed projects, subcontractor disputes, and any outstanding liens or litigation.

💡 Warranty obligations are a material risk in epoxy flooring acquisitions. A failed commercial floor — delamination, hot tire pickup in a garage, or chemical resistance failure in an industrial setting — can cost $10,000–$100,000 to remediate. Require the seller to disclose callback history and rework rates for the prior 36 months. Consider negotiating a warranty holdback of $25,000–$75,000 in an escrow account held for 12–18 months post-close as protection against undisclosed pre-close warranty claims.

Due Diligence Period and Access

Defines the length of the exclusivity and due diligence period, the access the buyer requires to financial records, customer contracts, equipment, and key employees, and the conditions under which either party may terminate.

💡 Sixty days is standard for SBA-financed acquisitions; however, epoxy flooring businesses often require additional time if the seller's financials are not CPA-reviewed or if equipment appraisals must be scheduled around active jobsites. Build in a 15-day extension option tied to SBA lender processing timelines. Require early access to crew payroll records to assess W-2 versus 1099 subcontractor classification risk — a common compliance exposure in trades businesses that can trigger back-tax liability.

Exclusivity and No-Shop Clause

Prevents the seller from soliciting or accepting competing offers during the due diligence period in exchange for the buyer's good-faith investment of time and diligence costs.

💡 Sellers who have been marketing their business for 6–12 months may push back on a 60-day exclusivity window. A reasonable compromise is 45-day exclusivity with automatic 15-day renewal if the buyer has submitted an SBA loan application and no material diligence issues have been identified. Avoid agreeing to a break-up fee — it is rarely appropriate in lower middle market trades acquisitions under $3M enterprise value.

Employee and Crew Retention

Addresses the buyer's expectation that trained field technicians and any project manager or estimator remain employed through and after the closing date, and outlines any retention bonus arrangements the seller agrees to facilitate.

💡 Crew retention is arguably the single most important operational risk in buying an epoxy flooring business. Trained applicators who understand surface preparation, primer adhesion, broadcast aggregate timing, and topcoat application take 12–24 months to develop. If the owner is the only estimator and the crew follows the owner's lead, negotiate a seller transition period of 6–12 months with a consulting or employment agreement. Frame this to the seller as protecting their legacy and legacy reputation — it is usually well received.

Seller Transition and Non-Compete

Establishes the seller's commitment to a post-close transition period and a geographic and temporal non-compete covenant to protect the buyer's investment in customer relationships and crew continuity.

💡 A 3-year, county-level non-compete is standard and defensible for SBA lender requirements. Do not accept a non-compete limited to the seller personally — ensure it extends to any entity the seller controls or has a material ownership interest in. Compensate the seller fairly for the transition period; a monthly consulting rate of $5,000–$10,000 for 6–12 months is typical and is usually included in the SBA project cost for financing purposes.

Conditions to Closing

Lists the material conditions that must be satisfied before the transaction can close, including SBA loan approval, satisfactory due diligence, landlord consent for facility leases, and transfer of required contractor licenses and insurance.

💡 Contractor license transferability varies by state. In some states, epoxy flooring businesses operate under a general contractor or specialty contractor license that is tied to the individual qualifier — meaning the buyer or a designated employee must pass a state exam to requalify. Identify this risk before LOI signing, not after. Similarly, confirm that the business's bonding and contractor's pollution liability policy (critical for solvent-based epoxy applications) can be transferred or reissued in the buyer's name without a coverage gap.

Confidentiality and Governing Law

Confirms that both parties will maintain confidentiality regarding the transaction and all shared business information, and identifies the state law governing the LOI and any subsequent definitive agreement.

💡 Always specify that the LOI is non-binding except for the named binding provisions. This protects both parties from being held to deal terms that change during diligence. However, the confidentiality obligation should be binding and should survive termination of the LOI — the seller's commercial client list and pricing structures are genuinely proprietary in a fragmented local market where a competitor could cause real damage with that information.