What Is a Letter of Intent (LOI)?
An LOI is your first "yes" from a buyer—a non-binding document that sets purchase price, key terms, and exclusivity period. It's your best leverage point in the entire deal.
What's in an LOI
Key Components
Purchase price and structure - How much and in what form (cash, stock, earnout)
Key terms - Employment period, escrow amount, closing conditions
Exclusivity period - How long you can't talk to other buyers (usually 60-90 days)
Timeline to closing - When they expect to complete due diligence and close
Why the LOI Is Your Best Leverage Point
This is your best leverage point in the entire process. Once you sign, you're committed to exclusivity and they have less pressure to maintain terms.
Push for:
- Higher cash at closing
- Shorter earnout periods
- Lower escrow amounts
- Realistic timelines (rushed deals often fall apart)
The Exclusivity Trap
Exclusivity means you can't talk to other buyers. This gives them time to find problems and retrade terms.
Keep exclusivity periods short (60 days max) and include breakup fees if they walk away.
Never sign exclusivity without a firm LOI with specific terms.
What's Actually Binding
Remember: LOIs are typically non-binding except for exclusivity and confidentiality clauses.
They can still walk away or change terms during due diligence. Don't celebrate until the definitive agreement is signed.
Common LOI Mistakes
- Agreeing to long exclusivity periods (90+ days)
- Not negotiating key terms upfront
- Accepting vague language on important points
- Not including breakup fees if they walk