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Letter of Intent Terms Every Seller Should Read

A letter of intent sets the shape of a deal before lawyers write the contract, and Boston Business Brokers Firm sees sellers focus on price and miss the rest.

Here are the terms to read twice.

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Key points

  • Price is only one term in a letter of intent.
  • Lock the payment structure, closing date and allocation in writing before the full contract.
  • Do not grant exclusivity to an unsolicited buyer without a valuation first.
  • Ask for proof of funds before you give a buyer your time.

What an LOI does

A letter of intent states the main terms a buyer proposes. It is usually not a final contract, but it frames everything that follows, so details matter.

Beyond the headline price

  • How much is paid at closing and how much later
  • Cash versus equity or notes
  • How the price is divided among equipment, inventory and goodwill
  • The scope and length of due diligence
  • Financing conditions and who must approve them
  • The buyer's proof of funds or lender prequalification

Lock the key terms early

Get price, payment terms and the target closing date in writing before the full contract. Terms left vague tend to move in the buyer's favor later.

Asset allocation

The agreed split of the price across assets affects taxes for both sides. Buyers prefer fast depreciating allocations, and sellers face different tax rates by category. Settle the allocation before signing, not later, and have your CPA model it.

Exclusivity

Many LOIs ask you to stop talking to other buyers for a period. Do not grant that to an unsolicited buyer early, before you have a valuation and a sense of the market.

Offers that arrive unasked often come from buyers hoping for a quick, cheap deal.

Transition time

Buyers often ask for more transition time than they use. Offer less and trade extra time for price when you can, and put in writing what help you will and will not provide.

Confidentiality and staff

An LOI should repeat the buyer's promise to keep the sale private. Do not tell employees until close to closing, since early news can send good people to a competitor.

Get help before you sign

Have your attorney read the LOI. A broker can compare it to other offers, and you can request a value estimate to see what a fair price looks like. Also read earnouts and seller notes.

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