The Numbers That Win an LOI vs the Ones That Hold

Short answer

The numbers that win an LOI and the numbers that hold to signing are the same numbers held to two different standards. An LOI is priced off management-prepared figures a buyer has taken largely on trust. A purchase agreement is signed against figures you have to support with source records, in a form someone else can reproduce. The gap between those two standards is where prices move.

Most owners think of diligence as one long test of their books. It is really two tests, run months apart, by people with different jobs and different tolerance for a rounded number.

The first test is fast and generous. A buyer reads your summary financials, your adjusted earnings schedule, and your growth story, decides the business is worth pursuing, and writes an offer. Nobody has opened your general ledger yet.

The second test is slow and literal. An accountant rebuilds your earnings from source data and asks you to stand behind the result in a signed contract. Same business, same year, much narrower definition of the word true.

Your books face two different standards, not one

Cost, timing, and how deep a buyer's accountants go all vary with the deal and with who is financing it, so read the table as the pattern rather than a rule.

At the LOI, your books are a sales document. They have to be clean, internally consistent, and fast to produce, because the job at that stage is to keep a buyer interested and paying attention.

At signing, your books are evidence. They have to reconcile to bank activity, tie to the source systems that generated them, and produce the same answer when someone else runs the calculation without your help.

What the LOI number is actually made of

The LOI number is usually your adjusted earnings figure, and adjusted earnings is an argument before it is a fact. It starts with net income, adds back the items you say are one-time or owner-specific, and lands on a figure a buyer applies a multiple to.

Nothing about that is improper. Every deal works this way. The problem is that the schedule which produced the number is often the least documented file in the business: a spreadsheet built once, by one person, with categories that live in that person's head rather than in the chart of accounts.

That works for exactly as long as nobody asks for the support. Then someone asks.

What changes when the number moves into the contract

At signing, your financial statements stop being information and become promises. A financial representation is a statement about your books that you sign as a fact in the purchase agreement, which means an error in it becomes a claim against your sale proceeds rather than a correction in next month's close.

The exact wording of those statements is set by the purchase agreement in your own deal and varies by transaction, so the useful question is not what the standard usually says. Ask your attorney three things: which accounting basis the representation refers to, what period it covers, and whether it says the statements were prepared consistently with prior periods. That last phrase is the one that reaches backward into work you did years ago.

The Two Copy Rule

Keep a dated, saved copy of every report you hand a buyer, in the exact format it was produced, and keep the earlier versions too. That is the whole rule, and it exists because consistency is the standard you are most likely to be asked to stand behind, and consistency is only provable when the earlier version still exists.

Here is what that looks like in practice. Say you hand a buyer a revenue-by-customer report in March, then change how your system groups two related customer accounts in June, then produce the same report in August for diligence. The August report is more accurate. It also does not match the March one, and you now have no way to show that the difference is a grouping change rather than a revenue change. Three emails and two calls later you are explaining your own reporting to a stranger who has started to wonder what else moved.

The fix costs nothing at the time and is nearly impossible to recreate later: a folder, dated exports, and a one-line note whenever a definition changes.

Where the two numbers usually come apart

Five places account for most of the distance between an LOI figure and a signing figure, and every one of them is accounting work rather than negotiation.

• Cutoff. Revenue and expenses recorded in the wrong month. Harmless in an annual summary, obvious the moment someone rebuilds your months from invoices and bank activity.
• Adjustment support. An add-back with no invoice, no board resolution, and no policy behind it is a line item you asserted. Buyers remove what cannot be supported, and each removal comes straight off the earnings number a multiple gets applied to.
• Revenue recognition consistency. Deposits, progress billing, prepaid contracts, and multi-month work treated one way in one year and another way in the next. The inconsistency, not the method, is what causes the adjustment.
• Related party and owner items. Rent paid to an entity you own, family members on payroll, personal expenses run through the business. These need a market-rate explanation and a document, not just a category.
• The balance sheet nobody looked at. Stale receivables, unreconciled clearing accounts, inventory that has never been counted. Buyers read the balance sheet at signing even when they barely read it at the LOI, and it feeds the working capital calculation written into the contract.

What to fix before an LOI, and what can wait

Three rules, plus the one nobody wants to hear.

• Fix it before an LOI if it changes the earnings number itself. Cutoff discipline, a documented adjustment schedule with support attached to every line, and consistent revenue treatment across all the years a buyer will look at. These take months to season, because a fix applied in one month does not repair the eleven months in front of it.
• It can wait until you are under contract if it is a retrieval problem rather than an accuracy problem. Pulling contracts, assembling a payroll history, exporting reports into the buyer's requested format. Tedious, but it does not move the number.
• Do it continuously, starting now, if it is the Two Copy Rule. Saved, dated exports cost nothing today and cannot be recreated once the reporting has changed underneath you.
• None of this is your first problem if your monthly close is not current. Every rule above assumes there is a close to build on. If the books are still being caught up quarterly, or the internal statements do not reconcile to what was filed, then documentation and version history are polish on an unfinished surface. The close comes first, and everything else gets faster once it exists.

The plain summary

An LOI is written against your reporting. A purchase agreement is signed against your records. The owners who see the smallest gap between the two are not the ones with the best story. They are the ones whose monthly close was already producing evidence-grade numbers before a buyer ever asked, which is why a price agreed in month one is still the price in month four.

Where Thryve fits

Thryve Accounting & Advisory builds the close that makes those two numbers match: monthly financials that reconcile, an adjustment schedule with documentation attached to every line, and a reporting archive that can still answer a question about last year in eighteen months. We coordinate with your CPA on anything tax-related rather than replacing them.

When you are ready to run an actual process, Texas Exit Advisors and Optima Mergers & Acquisitions handle the M&A side. Their write-up on why deals die after the LOI is worth reading alongside this one, because most of the causes on that list start as an accounting gap.

Want to know how far your books are from evidence-grade? Book a call and we will tell you straight.

Last reviewed: August 2026. This is general information, not legal, tax, or accounting advice for your situation. What a purchase agreement requires and what its financial representations cover are set by the documents in your own transaction and vary by deal and by counterparty. Talk to your attorney about your contract and your CPA about tax consequences before you sign anything.