Letter of Intent Template for Acquiring a Music School

Parties and Business Identification

Clearly identify the buyer entity (or individual), the seller, and the legal name of the music school being acquired. Specify whether the transaction will be structured as an asset purchase or stock purchase, which determines how liabilities, contracts, and instructor agreements transfer.

💡 Sellers often prefer a stock sale for tax advantages, but buyers of music schools almost universally prefer asset purchases to avoid assuming hidden liabilities, including undocumented instructor disputes, tax obligations, or lease default history. Be explicit about this preference in the LOI to avoid misalignment later.

Purchase Price and Valuation Basis

State the proposed total purchase price, the valuation methodology used to arrive at that number, and a breakdown of how value is allocated across tangible assets, goodwill, and student relationships. Music schools typically trade at 2.5x–4.5x SDE, and your LOI should anchor the price to a specific SDE figure derived from the seller's financials.

💡 Sellers frequently add back personal vehicle expenses, family wages, and owner teaching income to SDE without clear documentation. Challenge every add-back during due diligence. If the seller teaches 20+ hours per week, you must also budget for a replacement instructor salary, which effectively reduces true buyer SDE. Price accordingly or use an earnout to bridge the gap.

Transaction Structure and Financing

Detail how the purchase price will be funded, including the proportion covered by an SBA 7(a) loan, seller financing, earnout, and buyer equity injection. Most music school acquisitions in the $500K–$2M range are SBA-eligible, making 10% buyer equity injection the standard entry point.

💡 SBA lenders will require the seller note to be on full standby for the first 24 months of the loan, meaning no payments to the seller during that window. Disclose this early — sellers unfamiliar with SBA rules are often surprised. Earnout structures tied to student retention are highly effective in music school deals because they align the seller's transition support incentives with buyer downside protection.

Assets Included in the Sale

Enumerate the specific assets being transferred, including physical equipment, curriculum, brand IP, student enrollment records, instructor contracts, digital systems, and the facility lease. Music schools have significant value in intangible assets that must be explicitly listed to avoid post-close disputes.

💡 Pay particular attention to curriculum ownership — some schools license curriculum from third-party music education franchises or associations, which may require consent to transfer or ongoing royalty payments. Verify whether any branded programs (e.g., Music Together, Little Musicians) have transferable license agreements and factor that cost into your valuation.

Due Diligence Period and Access

Establish the length of the due diligence period, what information the seller must provide, and the buyer's rights to access facilities, staff, and financial records. Music school due diligence requires specific documentation that differs from standard business acquisitions.

💡 Insist on access to the billing software directly — not just exported spreadsheets. Live access to Jackrabbit or iClassPro allows you to verify active enrollment, payment status, and churn history without relying on seller-curated data. Also request at least one facility walkthrough to assess the condition of practice rooms, soundproofing, and any capital expenditures that may be required within 24 months of acquisition.

Exclusivity and No-Shop Provision

Prevent the seller from marketing the business or entertaining other offers during the due diligence period in exchange for the buyer's commitment of time and resources.

💡 Sellers working with brokers may push back on exclusivity longer than 45 days. Offer a phased structure: 30-day initial exclusivity with a 15-day extension contingent on the seller providing complete documentation on time. This creates mutual accountability and keeps both parties moving efficiently toward close.

Seller Transition and Non-Compete

Define the seller's post-close involvement in the business, the duration and scope of any transition support, and the geographic and temporal scope of a non-compete agreement. This is particularly critical in music schools where the seller may be known to students and families as the face of the school.

💡 Music school sellers who are also beloved instructors require careful handling. A heavy-handed non-compete can feel punitive and poison the transition. Frame it as protecting both parties: the seller's legacy and the buyer's investment. Consider allowing the seller to continue teaching a small number of personal students at a third-party location as a carve-out, which reduces resentment while still protecting your enrollment base.

Confidentiality

Establish mutual obligations to keep the terms of the LOI and all shared due diligence materials confidential, preventing premature disclosure to students, parents, instructors, or competitors.

💡 Instructor and student flight risk upon rumored sale is the single greatest value destruction risk in a music school acquisition. Treat confidentiality as mission-critical, not boilerplate. Even well-intentioned sellers sometimes mention the sale to a trusted instructor 'in confidence,' which triggers panic and departures. Include a specific covenant that Seller will not disclose to any employee or contractor without Buyer's express written consent and a jointly agreed communication plan.

Conditions to Closing

List the specific conditions that must be satisfied before the transaction can close, including SBA loan approval, lease assignment, key instructor retention, and satisfactory due diligence completion.

💡 The lease assignment condition is non-negotiable for SBA lenders — they will not fund a business without confirmed occupancy. Start the landlord conversation early, ideally with the seller making the introduction. Also consider adding a condition requiring that no more than [10%] of enrolled students have cancelled or paused enrollment between the LOI date and closing, providing protection against value erosion during the deal process itself.

Non-Binding Nature and Binding Provisions

Clarify which sections of the LOI are legally binding and which are expressions of intent, protecting both parties while preserving enforceable obligations around exclusivity and confidentiality.

💡 Some sellers, particularly those without prior transaction experience, mistakenly believe that a signed LOI obligates the buyer to close. Gently clarify this distinction early and in writing to prevent post-LOI conflict if due diligence surfaces issues that require renegotiation. Experienced music school brokers will help manage this expectation, but in unrepresented seller deals, the buyer must educate proactively.