Letter of Intent Template for Acquiring a Flooring Showroom

Buyer and Seller Identification

Identify the purchasing entity, the selling entity, and the individual principals involved. Clarify whether the buyer is an individual, an LLC to be formed, or an existing operating company such as a regional flooring chain or building materials distributor pursuing a tuck-in acquisition.

💡 If you are using an SBA 7(a) loan, the lender will require the acquisition entity to be formed prior to loan approval. Confirm early whether the seller owns real estate separately from the business — many flooring showrooms occupy leased space, but some owners own the building through a separate LLC, which may require a parallel real estate negotiation or lease execution at closing.

Purchase Price and Valuation Basis

State the proposed total enterprise value, the calculation basis (typically a multiple of trailing twelve-month or trailing three-year average adjusted EBITDA), and how inventory is treated — whether included in the stated price or purchased separately at a value to be determined during due diligence.

💡 Inventory is one of the most contested line items in flooring showroom deals. Buyers should insist on a physical inventory count and aging analysis before agreeing to include inventory in the purchase price at book value. Sample libraries depreciate quickly and may have little resale value — negotiate to exclude or heavily discount them. Sellers should resist buyers who attempt to retroactively reprice the entire deal after walking the stockroom. Establish a clear methodology in the LOI to avoid this friction.

Deal Structure and Asset vs. Stock Purchase

Specify whether the transaction is structured as an asset purchase or a stock purchase, and identify the specific assets being acquired. For flooring showrooms, this typically includes trade name, customer lists, supplier accounts, installer subcontractor relationships, showroom fixtures, display units, and equipment.

💡 Most flooring showroom acquisitions are structured as asset purchases, particularly when SBA financing is used, because lenders and buyers want clean title to assets without inheriting unknown liabilities. Sellers in a C-corp structure may push for a stock sale for tax reasons — if so, buyers should request a tax indemnity or price adjustment. Be explicit about which contracts are being assumed, especially the showroom lease and any open installation subcontracts with pending completion dates.

Financing Terms and SBA Loan Conditions

Disclose the buyer's intended financing structure, including SBA 7(a) loan amount, equity injection, and any seller note component. Make the LOI contingent on SBA loan approval if applicable, and establish timeline expectations accordingly.

💡 SBA lenders will require the seller note to be on full standby for 24 months, meaning the seller receives no principal or interest payments during that period. Sellers who need liquidity at closing should negotiate to minimize the seller note component or explore bridge financing. The SBA will also conduct its own business valuation, which can differ from the negotiated price — if the SBA appraisal comes in lower than the purchase price, the buyer may need to increase equity injection or renegotiate price. Build this contingency into the LOI explicitly.

Earnout Provisions Tied to Contractor and Builder Accounts

Define any performance-based earnout tied to revenue retention from key contractor, builder, or commercial accounts post-closing. Flooring showrooms with heavy contractor referral revenue often include earnouts to bridge valuation gaps caused by account transfer risk.

💡 Sellers should push for a shorter earnout period (12 months preferred over 24) and ensure the earnout is not diluted by buyer decisions such as changing pricing, firing key sales staff, or restructuring how commercial bids are submitted. Buyers should specify that earnout calculations exclude any accounts the seller actively directs away from the business post-closing. Both parties should agree on which accounts constitute the earnout baseline before signing — do not leave Exhibit A blank at LOI stage.

Seller Transition and Non-Compete Agreement

Define the seller's post-closing role, including transition assistance period, compensation during transition, and the geographic and temporal scope of the non-compete and non-solicitation covenants.

💡 For flooring showrooms where the owner is personally known to every major contractor and designer in the local market, a meaningful transition period is non-negotiable from the buyer's perspective. Sellers who have been in the business 15–25 years may resist a 12-month commitment — consider structuring the last 3–6 months as part-time availability rather than full-time presence. Non-competes in this industry are highly enforceable given the localized nature of flooring referral networks, but geographic scope should be tied to the actual trade area served, not an arbitrary radius.

Installer Subcontractor Network Transition

Address how the existing installer subcontractor relationships will be documented, disclosed, and transitioned to the buyer. This is a flooring showroom-specific provision rarely found in LOIs for other industries but critical to operational continuity.

💡 Many flooring showroom owners run their installer network entirely on handshake agreements and personal loyalty built over years. Buyers must assess whether installers will continue working with a new owner — particularly independent installers who treat the showroom relationship as a significant portion of their income. Consider including installer retention as a closing condition or earnout component for shops where installation revenue represents more than 40% of gross revenue. If key installers are also the seller's relatives or longtime friends, get explicit assurances about their post-closing participation in writing.

Showroom Lease Assignment or New Lease

Address how the existing showroom lease will be handled at closing, including landlord consent requirements, lease assignment conditions, and buyer's rights to negotiate a new lease term as a condition of closing.

💡 Showroom location is a primary value driver in flooring retail — a high-visibility location on a home improvement corridor near other design trades is worth significantly more than an equivalent business in a lower-traffic industrial park. Buyers should pull the lease and review it before signing the LOI, not during due diligence. Sellers approaching retirement often let leases run short without renegotiating — if the lease has less than 24 months remaining, the buyer's SBA lender will almost certainly require a lease extension as a loan condition.

Due Diligence Period and Access

Establish the length of the due diligence period, the categories of information to be provided, and the logistics of accessing the business, employees, and installer relationships without disrupting operations.

💡 Forty-five to sixty days is standard for a flooring showroom of this size. Sellers should not agree to less than 45 days — compressed timelines lead to buyers rushing and then re-trading price after closing when they discover issues. Buyers should prioritize reviewing the revenue breakdown by channel in the first week, as the residential vs. commercial vs. builder mix has significant implications for margin, cyclicality, and earnout structuring. Do not delay the inventory walkthrough — it is the single most common source of post-LOI price renegotiation.

Exclusivity and No-Shop Provisions

Establish a period during which the seller agrees not to solicit, entertain, or negotiate with other potential buyers, giving the buyer protected time to complete due diligence and finalize the purchase agreement.

💡 Sixty days of exclusivity is reasonable for a deal of this size. Sellers should resist requests for 90-day exclusivity without a corresponding deposit or break-up fee — long exclusivity periods without buyer commitment create unnecessary exposure for the seller if the buyer walks. Buyers who are serious should offer a good-faith deposit of $10,000–$25,000 held in escrow as consideration for the exclusivity period, refundable only if seller materially misrepresented the business during due diligence.

Conditions to Closing

List the material conditions that must be satisfied before the transaction can close, including financing approval, satisfactory due diligence, lease assignment, and any required third-party consents from suppliers or key accounts.

💡 Supplier confirmation is a condition that flooring showroom buyers frequently overlook until late in the process. Preferred dealer agreements with manufacturers such as Shaw, Mohawk, Anderson Tuftex, or Emser Tile are often non-transferable without manufacturer consent and sometimes require a formal application process that can take 30–60 days. Initiate those conversations as early as legally permissible during due diligence. Material adverse change clauses should specifically call out loss of key contractor accounts, installer departures, and showroom lease issues as qualifying events.

Binding and Non-Binding Provisions

Clarify which provisions of the LOI are legally binding on both parties and which are non-binding statements of intent, in accordance with standard M&A practice.

💡 Sellers sometimes assume the LOI price is locked in once signed — it is not. Buyers retain the right to renegotiate price based on due diligence findings, and sellers retain the right to reject a revised offer. The only truly binding provisions in a standard LOI are exclusivity, confidentiality, and cost allocation. Both parties should ensure their attorneys review the LOI before execution specifically to confirm which provisions carry legal weight.