Guide
Letter of Intent in a Business Purchase
The letter of intent is the hinge of a business sale. It is mostly non-binding, which leads owners to treat it casually, and that is a mistake: the LOI sets the terms every later negotiation argues from, and its exclusivity clause takes your business off the market.
What it usually binds, and what it does not
Typically non-binding: the purchase price, the structure and the closing date. These remain subject to diligence, and a buyer who finds something can and will revisit them.
Typically binding: exclusivity, confidentiality, and who pays their own costs. Exclusivity is the one that matters. Signing commonly removes your business from the market for 60 to 90 days, and if the deal collapses at day 85 you restart with a business that has been off the market for three months.
Terms that matter more than the headline price
Cash at closing versus deferred. A $2M price with $1.2M at close and $800,000 contingent is not a $2M deal, it is a $1.2M deal with an option attached.
Earnout terms, and specifically who controls the levers that determine whether it pays. Seller note amount, interest and security. Escrow size and release timing. The scope and duration of your non-compete. Whether you are expected to stay on, for how long, and paid what.
How to protect yourself inside it
Keep the exclusivity period as short as the buyer will accept, and tie it to diligence milestones rather than a bare calendar date. Require the buyer to evidence their funding before exclusivity starts.
Have the LOI reviewed by an attorney who does transactions. It is cheap relative to the deal and this is the document that frames everything after it.
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