What Is a Letter of Intent When Selling a Business? A Florida Seller’s Guide
If you’ve been through initial conversations with a buyer and things are moving forward, the next milestone is the Letter of Intent, commonly called the LOI. For many first-time sellers, the LOI feels like the finish line. It’s not. But it is a critical document that sets the foundation for everything that follows. Here’s what you need to know.
What a Letter of Intent Is
An LOI is a non-binding document, usually two to five pages, that outlines the key terms of a proposed business transaction. It covers the purchase price, deal structure (asset sale vs. stock sale), payment terms, any seller financing, the proposed closing timeline, conditions of the sale, and the length and scope of the due diligence period.
Why “Non-Binding” Doesn’t Mean Unimportant
Most LOIs are non-binding on the primary purchase terms. But they typically do include binding provisions around exclusivity, meaning once you sign an LOI with one buyer, you agree to stop marketing the business to others for a defined period, usually 30 to 60 days. That’s significant. If that buyer walks during due diligence, you’ve lost time in the market.
What to Watch for in an LOI
Read the LOI carefully with your broker and attorney before signing. Pay attention to the purchase price and how it’s defined. Understand what’s included in the sale, equipment, inventory, accounts receivable. Note any conditions or contingencies the buyer has inserted. Look at the length of the exclusivity period. And understand what happens to the deal if due diligence reveals material differences from the representations made in the CIM.
The LOI Sets the Negotiating Tone
How a buyer presents their LOI tells you a lot about how they’ll behave through the rest of the process. A reasonable, well-structured LOI from a buyer who has done their homework is a good sign. A lowball offer with aggressive terms from a buyer who hasn’t engaged seriously is a red flag worth taking seriously.
What Comes After the LOI
Once you accept an LOI, you move into due diligence, the period where the buyer verifies everything in the CIM. From there, it’s purchase agreement drafting, lender approval (if SBA), and closing. The LOI is the beginning of the end, not the end itself.
If you’re navigating a business sale in St. Augustine or anywhere in Northeast Florida, working with a broker who can guide you through the LOI and due diligence process is invaluable. Contact Ryan C. Winter to learn more.
Related Reading
- What Is a Letter of Intent When Selling a Business in Florida?
- What Is Due Diligence When Selling a Business in Florida?
- How to Sell a Business Without a Broker in Florida
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