What Is a Letter of Intent (LOI) When Selling a Business?
The Letter of Intent: Your First Step Toward Closing
After months of marketing your business, qualifying buyers, and sharing financials, you finally have a serious buyer who wants to make a deal. The next document you’ll encounter is the Letter of Intent — or LOI. Understanding what it means, what it commits you to, and what to negotiate are among the most important things you can do to protect yourself in a business sale.
What Is a Letter of Intent?
A Letter of Intent (also called a Term Sheet or Offer to Purchase) is a non-binding document that outlines the key terms of a proposed business sale before a formal purchase agreement is drafted. It covers the big-picture deal structure so both parties can confirm they’re aligned before spending significant money on legal and accounting fees for due diligence and contract drafting.
What Does a Typical LOI Include?
- Purchase price — total consideration and how it’s structured (cash at close, seller financing, earn-out)
- Deal structure — asset sale vs. stock/membership interest sale
- Working capital target — what level of working capital is included in the sale
- Deposit amount — if any earnest money is required
- Due diligence period — typically 30–90 days
- Exclusivity period — preventing you from negotiating with other buyers while due diligence proceeds
- Conditions to closing — financing, lease assignment, employee retention, regulatory approvals
- Transition period — how long the seller will help after closing
- Non-compete terms — geographic and time limitations on competing after the sale
Is the LOI Binding?
Most provisions in an LOI are non-binding — they establish intent but don’t legally obligate either party to close. However, certain provisions ARE typically binding: the exclusivity clause (you can’t shop the deal to other buyers during due diligence), confidentiality obligations, and sometimes the deposit terms. Read the LOI carefully — even “non-binding” documents can create practical constraints.
The Exclusivity Clause: Protect Yourself
The exclusivity period is one of the most consequential parts of the LOI. Once you sign, you stop talking to other buyers for 30–90 days (or longer) while this buyer conducts due diligence. If the deal falls through at the end of due diligence, you’ve lost months of deal momentum and may have to restart your buyer search. Keep the exclusivity period as short as possible — 45–60 days is reasonable for most small business transactions.
Key Items to Negotiate in an LOI
Work with your M&A advisor and attorney to negotiate: the purchase price and structure, the length of the exclusivity period, the working capital target (which affects your final proceeds), the definition of “material adverse change” that could allow the buyer to exit, and the non-compete scope and duration.
Never Sign an LOI Without Professional Guidance
The LOI sets the framework for everything that follows. Conceding too much at the LOI stage is hard to recover from in the purchase agreement. Ryan C. Winter negotiates LOIs for St. Augustine business owners to ensure the deal structure reflects your interests from the start. Contact us before signing anything.
Related Reading
- Should I Use a Business Broker to Sell My Business in St. Augustine?
- Should I Use a Business Broker to Sell My St. Augustine Business?
- How to Increase the Value of Your Business Before You Sell
Curious What Your Business Is Worth?
Get a free, data-driven estimate in under 3 minutes — no obligation, completely confidential.