For many business owners, the letter of intent is the first moment when a potential sale starts to feel real.
You have had a few conversations. The buyer has seen enough to stay interested. There may have been some back-and-forth about financials, growth, customers, employees, and what happens after the sale. Then the buyer sends an LOI, and suddenly the discussion moves from “maybe someday” to “here is what a deal could look like.”
That can be exciting. It can also be misleading.
A letter of intent, or LOI, is not the final purchase agreement. It is usually non-binding in several important areas, which means the deal can still change. But it is still one of the most important documents in the sale process because it sets expectations around business price, deal structure, timing, exclusivity, diligence, and the buyer’s real intent.
A winning LOI is not always the one with the biggest number at the top, but one that gives the owner the strongest combination of value, certainty, fit, and clean execution.
What an LOI should include
A good LOI should give both sides a clear picture of the proposed transaction. It does not need to answer every legal question, but it should be specific enough that the seller understands what the buyer is offering and what still needs to be confirmed.
At a minimum, the LOI should include:
- The proposed purchase price
- Deal structure,
- Assets or equity being purchased,
- Payment terms,
- Financing assumptions,
- Due diligence requirements,
- Expected closing timeline,
- Exclusivity period,
- Major conditions,
- Any expectations around the owner’s role after closing.
It should also explain what happens with working capital, debt, cash, inventory, equipment, real estate, employees, customer contracts, and any seller financing or earnout. These details are not just paperwork. They affect what the seller actually receives, how much risk remains after closing, and whether the deal is likely to close on the terms being discussed.
So let’s see a few elements that make an LOI actually strong:
1. Shows a clear purchase price
Price matters. It always matters. But the number needs to be specific enough to understand. A weak LOI may say the buyer is willing to pay “up to” a certain amount, or it may present a broad range that still depends on future review. That is not necessarily a bad sign, but it does mean the offer is less firm than it may look at first glance.
A stronger LOI states the proposed purchase price clearly and explains how the buyer arrived at it. Is the offer based on a multiple of EBITDA? Is it tied to a specific revenue or cash flow figure? Does it assume a certain level of working capital remains in the business?
Owners should be careful with headline value. A $5 million offer may not really be a $5 million offer if a large portion depends on future performance, seller financing, or unclear adjustments at closing.
2. Has a clear structure
Two LOIs can show the same purchase price and still lead to very different outcomes for the seller.
One buyer may offer mostly cash at closing. Another may offer a mix of cash, seller note, earnout, rollover equity, or payments tied to future milestones. Each piece affects risk.
An earnout, for example, can be reasonable in the right situation, especially if the business is growing quickly or the buyer and seller need to bridge a valuation gap. But the seller needs to understand what has to happen for that money to be paid. Who controls the business after closing? What if the buyer changes pricing, staffing, marketing, or operations? What if the seller no longer has control over the numbers that determine the earnout?
A winning LOI makes the structure easy to understand. It should show what is paid at closing, what is paid later, what is guaranteed, and what is conditional.
3. Explain what is included in the deal
Owners should look closely at what the buyer believes they are buying.
Is this an asset sale or stock sale? Are vehicles, equipment, inventory, real estate, customer lists, contracts, trade names, websites, phone numbers, and working capital included? Are any assets excluded? Will cash stay with the seller? Will debt be paid off at closing?
These details are especially important for owner-led businesses, trade businesses, service companies, and local companies where the business may have personal relationships, equipment, leases, vendor agreements, and long-time employees tied into daily operations.
A good LOI does not need to answer every legal question, but it should give both sides a shared understanding of the deal before diligence begins.
4. Lists reasonable contingencies
If an LOI gives the buyer the ability to change the deal for almost any reason, the seller may enter exclusivity thinking they have a strong offer, only to find out the buyer was not ready to stand behind the number.
For business owners, the easiest way to think about contingencies is this: what does the buyer still need to confirm, and what happens if they confirm it? A reasonable contingency is tied to a specific issue, such as verifying financial performance, confirming there are no major undisclosed liabilities, securing financing, or reviewing key contracts.
A weak contingency is vague. It may say the deal is subject to “satisfactory diligence” without explaining the key assumptions behind the offer. That gives the buyer a lot of room to reopen price, structure, or terms after the seller has already stopped talking to other buyers.
A stronger LOI makes the buyer’s assumptions clear. If the offer is based on $1 million of adjusted EBITDA, a specific working capital level, or continued performance through closing, those points should be stated. That way, diligence becomes a process of confirming known assumptions instead of a chance to renegotiate the entire deal from scratch.
5. Adds exclusivity as part of the commitment
Most LOIs include an exclusivity period. This means the seller agrees not to negotiate with other buyers for a set amount of time while the buyer completes diligence and works toward closing.
Exclusivity is a serious commitment. Once an owner signs it, other conversations usually stop. That can be the right move when the buyer is credible and the LOI is strong. It can be risky when the buyer is still vague, slow, underprepared, or using exclusivity to lock up the opportunity before doing real work.
A winning LOI pairs exclusivity with a clear timeline. It should outline how long diligence will take, when financing will be confirmed, when the purchase agreement will be drafted, and when closing is expected.
6. Considers buyer fit
Owners often focus on price and terms first, which makes sense. But buyer fit matters too, especially when the seller cares about employees, customers, reputation, and the future of the company.
A strong LOI usually comes from a buyer who understands the business, asks thoughtful questions, and has a clear reason for wanting the acquisition. They may be a strategic buyer, a search fund, a private investor, or another operator in the same industry. The label matters less than their ability to close and their plan after closing.
If the buyer does not understand the business before the LOI, there is a higher chance they will get nervous during diligence.
7. Establishes timing
Selling a business is not just about getting interest. It is about keeping the process moving without letting the deal drift.
A realistic LOI should outline the expected timeline for due diligence, financing, legal review, purchase agreement drafts, and closing. It should also account for the seller’s responsibilities during that period. Owners are usually still running the business while answering diligence requests, gathering documents, meeting with advisors, and keeping operations steady.
If the timeline is too vague, the deal can drift. If it is too aggressive, both sides may miss important details or create unnecessary pressure. A strong LOI gives the process enough structure to keep momentum without forcing the seller into rushed decisions.
For business owners, the key question is whether the proposed timeline matches the complexity of the deal.
The best LOIs are clear, realistic, and specific enough to reduce surprises. They show that the buyer has done real thinking. They help the seller compare offers beyond the headline number. Most importantly, they give both sides a practical path from interest to closing.
At Bbg, we help business owners think through buyer conversations, valuation, and deal structure before they are deep into a sale process. If you are starting to think about what a future exit could look like, now is the right time to understand what buyers will value and what a strong offer should include. Explore our exit planning services to learn more.