A Letter of Intent (LOI) — sometimes called a Term Sheet or Offer to Purchase — is a non-binding document that outlines the proposed key terms of a business sale before the parties invest in full legal documentation and due diligence. Signing an LOI typically triggers an exclusivity period during which the seller stops marketing the business to other buyers while the agreed buyer conducts due diligence.
What an LOI Covers
Key terms in a business sale LOI include: the proposed purchase price and structure (cash at closing vs. seller note vs. earnout), asset vs. stock sale election, inventory handling and working capital requirements, exclusivity period length (typically 60–90 days), contingencies (financing, due diligence approval), expected closing timeline, and any key deal conditions (lease assignment, employee retention requirements, seller transition period).
LOI Negotiation Strategy
The LOI is the most important negotiation in any business sale because it sets the framework for everything that follows. Sellers who accept weak LOI terms believing they can renegotiate during due diligence are almost always disappointed — buyers with exclusivity have more leverage than buyers competing for attention. Negotiate the LOI terms as carefully as you would the final purchase agreement.
Not every term in an LOI is binding, but exclusivity and confidentiality provisions typically are. Read the exclusivity section carefully — it defines how long you cannot talk to other buyers and what conditions allow you to re-engage the market if the buyer fails to perform.