This is education, not legal advice. Have your attorney review any LOI before you sign it.
Why the LOI matters so much
Once you sign an LOI with exclusivity, the seller typically stops talking to other buyers. That shifts leverage to the buyer. Terms left vague in the LOI tend to get resolved later — often in the buyer’s favor. Sellers should negotiate the important points before signing, not after.
What a strong LOI includes
Price and structure
- Total purchase price
- Cash at closing
- Seller note — amount, term, interest, standby requirements
- Earnout — metric, period and terms
- Assumed liabilities, if any
Deal type
- Asset purchase or stock/membership interest purchase. See asset sale vs stock sale.
- What’s included and excluded — real estate, vehicles, cash, receivables, specific assets.
Working capital
- Whether a working capital target is delivered at closing and how it’s measured. See working capital.
Financing
- How the buyer will fund the purchase
- Financing contingency and timeline
Due diligence
- Length of the diligence period
- Access the buyer will receive
- When the buyer may talk to employees, customers and suppliers
Exclusivity
- How long the seller agrees not to negotiate with others
- What happens if the timeline slips
Seller transition
- How long the seller will stay and in what role
- Compensation for transition or consulting work
Non-compete
- Scope, geography and length. See non-compete.
Key conditions
- Lease assignment or new lease
- Key contract consents
- Licenses and permits
- Lender approval
- Satisfactory diligence
Timeline
- Target dates for diligence, financing and closing
Binding provisions
- Confidentiality, exclusivity, expenses, governing law — and an explicit statement that other terms are non-binding.
Seller pitfalls
- Long exclusivity with no milestones.
- Undefined working capital that becomes a surprise price cut.
- Vague financing — no proof the buyer can fund the deal.
- Unclear seller note terms — especially standby requirements.
- Earnouts without definitions.
- Ignoring tax effects of asset vs stock structure.
Buyer pitfalls
- Overcommitting on price before diligence.
- Underestimating time needed for diligence and financing.
- Missing key conditions — a lease, a license, a customer consent.
- Forgetting transition — what you’ll need from the seller after closing.
How to negotiate the LOI
- Know your priorities. Price, cash at closing, timeline, role after closing, employees, taxes.
- Get advisors involved now, not after signing.
- Compare offers on total value and certainty, not just headline price.
- Ask the buyer to explain their financing and diligence plan.
- Agree on what happens if timelines slip.
Comparing multiple LOIs
| Factor | Why it matters |
|---|---|
| Cash at closing | Certainty |
| Total price | Value |
| Seller note and earnout | Risk you carry |
| Financing certainty | Will it close? |
| Working capital terms | Hidden price effect |
| Transition and role | Your life after closing |
| Buyer fit | Your employees and legacy |
After signing the LOI
The real work begins: diligence, financing and drafting the purchase agreement. Keep running the business and respond quickly to requests. See business due diligence.
LOI vs indication of interest
In more structured sale processes, buyers may first submit an indication of interest — a shorter, non-binding statement of value range and key terms — before a smaller group is invited to submit full letters of intent. In smaller deals, buyers often go straight to an LOI. Either way, the closer an early offer comes to the specifics of an LOI, the more seriously sellers can take it.
How I write LOIs
When I’m buying, I try to put the important terms in writing upfront: price and structure, how I’m financing it, working capital expectations, the seller’s transition role, timeline and the conditions I’ll need. Sellers deserve to know what they’re agreeing to before they take their business off the market.
Next steps
Read purchase agreement and business acquisition process. If you’ve received an LOI for a South Carolina business and want a buyer’s perspective, start a confidential conversation.
Questions to ask before you sign
- If diligence turns up an issue, how will price changes be handled?
- What exactly happens to my receivables, cash and inventory at closing?
- Is the seller note on standby, and what does that mean for when I’m paid?
- How long am I expected to stay, and am I paid for that time?
- What happens if the buyer’s financing falls through?
- When does exclusivity end if the deal stalls?
A buyer who answers these clearly before you sign is far more likely to close on the terms you expect. A buyer who keeps saying “we’ll figure that out later” is telling you where the renegotiation will happen.
Red flags in an LOI
Watch for very long exclusivity with no milestones, broad language letting the buyer change price for any diligence finding, financing that’s described only as “to be arranged,” and a working capital target with no method stated. None of these alone means the buyer is acting in bad faith, but each one shifts risk toward the seller.
Questions people ask
Is a letter of intent binding?
Most LOI terms — price and structure — are typically non-binding. Certain provisions are usually binding, such as confidentiality, exclusivity (no-shop), expenses and governing law. The LOI should state clearly which provisions bind the parties.
What should a letter of intent include?
Price and structure, cash at closing, financing contingencies, seller financing or earnout terms, working capital, asset or stock purchase, what’s included and excluded, due diligence period, exclusivity, seller transition, non-compete, key conditions and the target closing timeline.