If you’re selling your business, few moments feel as significant as receiving a Letter of Intent from a buyer. After months of preparation, conversations, and due diligence requests, someone has put something in writing. They want to buy your business.
It’s a genuine milestone. It’s also frequently misunderstood, and that misunderstanding can create real problems if sellers treat an LOI as something it isn’t.
Here’s what you actually need to know.
What Is a Letter of Intent?
A Letter of Intent, commonly called an LOI, is a written document from a prospective buyer that outlines the basic terms under which they’re proposing to acquire your business. Think of it as a formal expression of serious interest, a document that says “here’s what we’re thinking and here’s how we want to structure it” before the parties commit to a binding agreement.
A typical LOI will include:
- The proposed purchase price
- How the purchase price is structured (cash at closing, seller financing, earnout, equity rollover, or some combination)
- Whether it’s an asset sale or a stock sale
- The proposed due diligence period
- An exclusivity clause (more on this shortly)
- Target closing timeline
- Any key conditions that need to be met before the deal can proceed
The LOI is not the purchase agreement. It is not a binding contract to close. It is the starting point for more detailed negotiation and sets the framework for everything that comes next.
What an LOI Does Not Mean
This is where sellers sometimes get it wrong, and the consequences can be emotionally and financially costly.
It does not mean the deal is done. A signed LOI signals real intent, but deals fall apart after LOI more often than most people outside the industry realize. Due diligence findings, financing complications, valuation disagreements, or simply a change in the buyer’s circumstances can all derail a transaction that seemed certain.
It does not lock in the price. The purchase price in an LOI is a starting point, not a guarantee. Buyers routinely use the due diligence period to identify issues that justify a price reduction. If they find something they didn’t expect, inventory discrepancies, customer concentration risk, deferred maintenance, pending litigation, or inconsistencies in the financials, they will bring it back to the table. Sometimes that’s legitimate. Sometimes it’s a negotiating tactic. Either way, the number in the LOI isn’t necessarily the number you’ll see at closing.
It does not mean you can stop running the business. This is critical. One of the most common mistakes sellers make after receiving an LOI is mentally checking out of the business. They’re excited, they’re relieved, and their attention shifts to what comes next. Meanwhile, if revenue dips or key employees start acting differently, buyers notice, and it affects the deal. The business needs to keep performing at its best through closing.
It is not public information. An LOI is a confidential document. Sharing news of a pending sale with employees, customers, or vendors before you’ve closed is one of the fastest ways to create problems that didn’t exist before.
What an LOI Does Mean
With all of those caveats in place, a signed LOI is still genuinely meaningful, and here’s why.
It means a buyer has done enough homework to make a serious offer. By the time someone sends an LOI, they’ve reviewed your financials, your operations, and your story. They’re not kicking tires. They’re committing time, resources, and, in most cases, legal and advisory fees to pursue the transaction.
It establishes the framework for negotiation. The LOI gives both parties a shared starting point. Even if specific terms get negotiated during the due diligence period, the LOI defines the ballpark and prevents the process from drifting into endless ambiguity.
It typically triggers an exclusivity period. Most LOIs include an exclusivity clause, also called a “no-shop” provision, that requires the seller to stop marketing the business to other buyers for a defined period, usually 30 to 90 days. This protects the buyer’s time and resource investment. As a seller, this is one of the most important provisions to watch, because once you sign it, your negotiating leverage with other potential buyers is effectively paused. Make sure the exclusivity window is reasonable and has a clear expiration date.
It moves the process into due diligence. The LOI formally kicks off the due diligence period, giving the buyer an opportunity to verify everything you’ve represented about the business. This is where the real work begins.
What Happens After an LOI
Once an LOI is signed, the transaction shifts into a more intensive phase. Here’s a general sense of what to expect.
Due diligence. The buyer and their advisors will request and review documentation across every aspect of the business: financials, tax returns, contracts, leases, employee agreements, customer relationships, intellectual property, legal history, and more. This process can feel invasive. It is thorough by design. Be prepared to respond quickly and completely. Delays in producing documents create anxiety for the buyer and can slow or derail the deal.
Purchase agreement negotiation. While due diligence is underway, attorneys for both parties will draft and negotiate the definitive purchase agreement. This binding contract governs the transaction. The LOI terms serve as the starting framework, but the purchase agreement is far more detailed.
Financing. If the buyer is using SBA financing or other outside capital, the lender’s approval process runs in parallel with due diligence and legal drafting. Financing timelines can significantly affect the overall closing timeline.
Closing. When due diligence is complete, the purchase agreement is finalized, and financing is in place, the transaction closes. Funds are transferred, documents are signed, and ownership formally changes hands.
The timeline from signed LOI to closing typically runs 60 to 120 days, though complex deals can take longer.
How to Protect Yourself During This Phase
The period between LOI and closing is when sellers are most vulnerable, and when experienced representation matters most.
A few principles worth keeping in mind:
Stay engaged in the business. Revenue and performance need to hold through closing. A buyer who sees declining numbers during due diligence has justification to renegotiate.
Be responsive during due diligence. Delays signal disorganization, which makes buyers nervous. Having your documentation ready and well-organized before the LOI stage makes this period significantly smoother.
Don’t overshare outside the deal team. Employees, vendors, and customers shouldn’t know a sale is in process until you’re ready to announce it. Leaks create uncertainty and can destabilize what a buyer is paying for.
Read the LOI carefully before signing, especially the exclusivity provision and any conditions that could let the buyer walk away without consequence. Your attorney should review it before you sign anything.
The LOI Is a Beginning, Not a Finish Line
Receiving a strong LOI is something to feel good about. It means your business attracted serious interest, and the preparation you put in paid off. But the work isn’t done yet.
The sellers who reach the closing table with the best outcomes stay focused, stay organized, and stay engaged all the way through. They treat the LOI as the beginning of the final stretch, not the end of the race.
If you’re preparing to sell and want a team to guide you from early preparation through closing, we’re here.
Boss Group International is a business brokerage firm specializing in the sale of upper-main-street to lower-middle-market businesses. Based in Orlando, Florida, the firm guides business owners through every stage of the exit process, from early preparation through closing day. For more information, visit bossgi.com.