A letter of intent is the moment a casual conversation becomes a real deal. It is also the moment most owners give away leverage they did not know they had. An LOI is not a binding contract to sell your business, but it sets the frame for everything that follows: price, structure, timing, and what you are allowed to do while the buyer digs through your books. Get the LOI right and due diligence becomes a confirmation. Get it wrong and you spend months negotiating against terms you already agreed to in principle.

What a letter of intent actually is

A letter of intent, or LOI, is a short document that captures the main terms of a proposed sale before anyone invests serious time and money in due diligence. Think of it as the outline of the deal. It typically covers purchase price, how that price will be paid (cash at closing, seller note, earnout), what assets are included, a due diligence period, exclusivity, and a target closing date.

Most of an LOI is non-binding. The price, the structure, and the timeline are usually stated as intentions, not legal obligations. But two sections almost always are binding: confidentiality and exclusivity. Exclusivity means you agree not to talk to other buyers for a defined period, often 60 to 90 days, while this buyer conducts due diligence. That is where the leverage lives.

What a typical Main Street LOI includes

For businesses in the $500,000 to $5 million range across Pennsylvania, Maryland, and Delaware, LOIs tend to follow a predictable structure. Here is what you should expect to see, and what each section means for you.

  • Purchase price - Usually stated as a total number, sometimes with a range or an earnout component tied to future performance.
  • Structure - Asset sale versus stock sale, allocation of the purchase price among assets (which affects your taxes), and whether real estate is included.
  • Payment terms - How much cash at closing, whether the seller carries a note, and any holdback or escrow for indemnification.
  • Working capital - A target level of working capital the business must have at closing. This trips up sellers who do not understand it.
  • Due diligence period - Typically 45 to 90 days for the buyer to review financials, contracts, leases, and operations.
  • Exclusivity - The no-shop period during which you cannot solicit or accept other offers.
  • Conditions to closing - Financing approval, lease assignment, key employee retention, and other items that must be satisfied.
  • Transition period - How long you stay on after closing to train the buyer, and whether you are compensated for that time.

The clauses that cost sellers money

Not all LOI terms are created equal. Some are boilerplate. Others quietly shift hundreds of thousands of dollars from your side of the table to the buyer's. These are the ones to watch.

Working capital adjustment

Many LOIs include a working capital target, often pegged to a trailing average. If working capital at closing falls below that target, the purchase price is reduced dollar for dollar. Sellers who drain cash from the business in the months before closing, or who do not understand what counts as working capital, routinely lose money here. Know your number before you sign.

Broad earnout language

An earnout ties part of the price to future performance. That is not inherently bad, but vague earnout terms are a trap. Watch for undefined metrics, no clear measurement period, and buyer control over the business after closing that makes hitting targets difficult. If an earnout is on the table, the formula should be simple enough to calculate on the back of an envelope.

Long exclusivity with no milestones

A 90-day exclusivity period is standard. A 120-day period with automatic extensions is not. If the buyer wants a long exclusive window, tie it to milestones: financing application submitted by day 30, due diligence substantially complete by day 60. If they miss a milestone, exclusivity should end.

Vague conditions to closing

Conditions like "buyer must be satisfied with due diligence" or "buyer must obtain acceptable financing" give the buyer a free exit. Push for specifics: SBA loan approval within 45 days, lease assignment within 30 days, no material adverse change clause that is narrowly defined. The goal is to prevent the buyer from using a vague condition to renegotiate price after they have had 60 days inside your business.

How to negotiate without killing the deal

Negotiating an LOI is not about winning every point. It is about protecting the terms that matter most and signaling that you are a serious seller who understands the process. Buyers respect that, and they are more likely to invest in due diligence when they believe the seller will close.

  1. Know your walk-away number before the LOI arrives. If you do not know the minimum you will accept, you will negotiate against yourself in real time.
  2. Respond in writing, point by point. A redline of the LOI with your comments is more effective than a phone call saying you want a higher price.
  3. Pick two or three non-negotiables. For most sellers, those are price floor, cash at closing percentage, and exclusivity length. Let smaller items go.
  4. Never sign under time pressure. Buyers who demand a signed LOI by Friday are often testing whether you will accept bad terms. A serious buyer will give you a reasonable window.
  5. Have your attorney review before you sign. Not after. LOI review is inexpensive compared to fixing a bad deal structure in the purchase agreement.

The LOI is where you set the rules of the game. Once those rules are written, every later negotiation happens inside them.

A principle every experienced broker reinforces

What happens after you sign

Once the LOI is signed, the buyer's team goes to work. They will request financial statements, tax returns, customer contracts, lease agreements, employee records, and vendor lists. They will visit your facility, talk to your key people, and run the numbers through their lender. Your job during this period is to keep the business performing and to respond to requests promptly and completely.

Most deals that die after an LOI fail for one of three reasons: the financials do not support the price, a material issue surfaces in due diligence that was not disclosed, or the buyer cannot secure financing. The first two are largely within your control if you prepared honestly. The third is why you want the LOI to include specific financing milestones and a reasonable exclusivity window.

When to walk away from an LOI

Not every LOI deserves your signature. Walk away, or counter aggressively, when:

  • The price is more than 20 percent below a defensible valuation with no earnout or structure that justifies the gap.
  • The buyer wants six months of exclusivity with no financing commitment.
  • The LOI requires you to disclose customer names or financials before confidentiality protections are in place.
  • The buyer is a direct competitor and the LOI does not include strong non-use provisions for your customer and employee data.
  • You have other interested buyers and this LOI's exclusivity would shut down a competitive process that could produce a better price.

A well-negotiated LOI does not guarantee a closed deal, but it dramatically improves your odds. It sets clear expectations, protects your leverage, and signals to the buyer that you have done this before, even if you have not.