What does "the LOI is not the finish line" actually mean?
A signed letter of intent (LOI) — a non-binding agreement to pursue a deal on rough terms — feels like the win. It isn't. It's the moment you start proving whether the seller's story survives the data. Everything before the LOI is a pitch. Everything after is verification: slow, messy, and process-driven.
Internet narratives make buying a small software business sound fast and clean. Practitioners describe the opposite. Due diligence — the structured review of a target's financials, customers, code, and contracts before you commit money — is where most of the calendar goes, and where most surprises live. Treat the LOI as a hypothesis. Your job is to try to break it.
Why does small-SaaS diligence feel so messy?
Small SaaS is messy because one person usually built and ran everything, so the "system of record" is that person's memory. Records are partial, revenue definitions are loose, and the code has undocumented dependencies. The mess isn't a red flag by itself — it's the default condition. Your process has to expect it.
Retail-buyer demand is real and rising: threads asking whether $50K can buy a SaaS with at least $3K MRR — monthly recurring revenue, the predictable subscription income a SaaS earns each month — show a steady stream of first-time buyers. Most underestimate two things:
- Duration. Diligence on even a tiny business takes weeks, not a weekend.
- Depth. The clean top-line number hides cohort behavior, concentration, and founder dependency underneath it.
What should you diligence after the LOI?
Work a fixed checklist. Each item below is a claim to verify against evidence, not a box to tick because the seller sounded confident. If a claim can't be proven from records, treat it as unproven — not as true.
Revenue and customer risk
- Revenue quality. Is the MRR real, recurring, and recognized correctly — or padded with one-time fees, expired trials, or annual deals booked as monthly?
- Customer concentration. How much revenue rides on the top few accounts? One departure can erase the thesis.
- Churn by cohort. Group customers by the month they joined and track how each group retains. A healthy top line can hide a leaking bucket.
Operational dependency
- Founder dependency. What breaks the day the founder leaves — sales, support, deploys, the one server only they can restart?
- Support burden. How many hours a week does keeping customers happy actually take, and who does it after close?
- Technical debt. The undocumented, brittle, or outdated parts of the codebase you'll pay to maintain or replace.
Legal and platform risk
- Data ownership. Who owns the customer data, and can it legally transfer to you?
- Platform dependency. Does the product live or die on one API, app store, or marketplace whose rules you don't control?
- Contract assignment. Can existing customer contracts transfer to the new owner, or do they terminate or require consent on a change of control?
- Payment processor history. A record of chargebacks, holds, or account freezes travels with the business and can strand your cash flow.
How does "propose, never commit" apply to buying a business?
Vantrow's principle for software — propose, never commit — maps cleanly onto diligence. Software should stage an action and let a human approve it, with everything landing on an audit trail. Diligence works the same way: every seller claim is a proposition, and you're the approver. Verify against evidence before you commit capital.
That reframing changes how you run a deal:
- Stage every claim. Write each assertion — "MRR is $4K," "churn is under 3%" — as something to be proven, not accepted.
- Require evidence per claim. A number in a spreadsheet is a proposal. The processor export, the database query, the signed contract is the proof.
- Keep an audit trail. Track which claims are verified, which are open, and what evidence closed each one. When you renegotiate or walk, you'll have the paper.
The buyers who lose money aren't lazy. They accept the story because it's coherent, and coherence isn't evidence. A governed process assumes the story is a draft until the data signs off.
FAQ
FAQ
Is a signed LOI a commitment to buy?
No. An LOI is a non-binding agreement to pursue a deal on outline terms. Its main function is to open exclusive diligence. Real commitment comes at the purchase agreement, after the seller's claims have been verified against records. Treat the LOI as the start of proving the story, not the end of the deal.
How long does diligence take on a small SaaS?
Longer than most first-time buyers expect — typically weeks, not a weekend, even for a business doing a few thousand dollars in MRR. The delay comes from messy records, founder-held knowledge, and the back-and-forth of requesting and verifying evidence for each claim. Budget the time before you sign the LOI.
Can you really buy a SaaS for $50K with $3K MRR?
Sometimes, but the price is the easy part. What determines whether it's a good buy is churn by cohort, customer concentration, founder dependency, and whether contracts and payment processing transfer cleanly. A cheap business with a leaking retention bucket or one dominant customer can cost you far more than the sticker.
What single item derails small-SaaS deals most often?
Founder dependency and customer concentration are the usual culprits. If the founder personally holds sales, support, and deployment knowledge, or if a couple of accounts carry most of the revenue, the business you're buying may not survive the handoff. Verify both early, before you spend on legal or accounting review.
Why treat seller claims as propositions?
Because coherence isn't evidence. A tidy deck can be internally consistent and still wrong. Staging each claim as something to prove — and closing it only with a processor export, a database query, or a signed contract — keeps you from paying for a story. It's the same discipline good software uses: propose, never commit.