Acquisitions

Letters of Intent

The two-page letter that decides your deal — because every term you leave out of it, you will negotiate later from a much weaker position.

  • Intermediate
  • 9 min total
  • 12 chapters

What decision this helps you make: What to nail down in a letter of intent before you hand a seller exclusivity and start spending money.

What this topic is

A letter of intent (LOI) is the short document that says "here is the deal we intend to do" before either side pays lawyers to write a real contract. Almost all of it is expressly non-binding. A small, deliberate part of it — exclusivity, confidentiality, who pays what — is binding, and that part is where the leverage moves.

Why it matters

The LOI is the last moment you can walk away for free. The day you sign it, you stop looking at other businesses, the seller stops taking calls, and you start burning money on accountants and lawyers. Everything you did not write down beforehand gets negotiated after your money is already spent.

Who should learn it

Anyone about to make a real offer on a business — a first-time buyer, a searcher, an operator bolting on a competitor, or a seller reading a buyer's letter and deciding what to strike.

What you will understand

  • What an LOI does, and which parts of it actually bind you
  • The twelve terms a serious LOI settles — price, peg, escrow, exclusivity, and the rest
  • Why leverage peaks the moment before you sign and falls every day after
  • How to write exclusivity that expires if the seller stops cooperating

Prerequisites

Common misconception

"It is non-binding, so the details do not matter — we will sort it out in the purchase agreement." That sentence has cost buyers more money than any other in acquisitions. Non-binding does not mean costless: signing an LOI buys the seller your exclusivity, your diligence spend, and your emotional commitment. Every term you left blank is now negotiated by a buyer who has already spent $40,000 and told everyone the deal is done.