How to Write a Letter of Intent (LOI) to Buy a Business

The letter of intent is the hinge of an acquisition. Sign a vague one and you'll fight over basics during diligence with no leverage; sign a tight one and the rest of the deal runs on rails you set. For searchers and self-funded buyers, the LOI is where you convert "interested" into a real, exclusive path to close. This guide covers what goes in it, which parts bind you, and the mistakes that cost buyers leverage. It's the natural next step after sourcing a deal and before confirmatory diligence.

Quick answer: An LOI is a mostly non-binding outline of the deal — price, structure, and conditions — with a few binding provisions (typically exclusivity, confidentiality, and who pays expenses). Its real jobs are to confirm you and the seller agree on the big terms before spending money on diligence, and to lock in exclusivity so you're not negotiating against other buyers while you do the work.

Binding vs. non-binding — get this right first

This is the part buyers most often misunderstand:

• ✓Non-binding (most of it): price, deal structure, and conditions are an agreement to try to agree. You can still walk if diligence turns up problems, and the final terms live in the purchase agreement.
• ✓Binding (a few clauses): exclusivity/no-shop, confidentiality, and the expense/standstill terms usually are binding once signed. State clearly which provisions bind both parties, so there's no ambiguity.

Getting this wrong cuts both ways — accidentally binding yourself to a price before diligence, or failing to bind the seller to exclusivity, are both costly.

The key terms to include

• ✓Purchase price and structure — the number, and whether it's an asset purchase or a stock/equity purchase (this has big tax and liability consequences — an asset deal generally limits inherited liabilities).
• ✓What's included — assets, inventory, real estate, and a normalized working capital expectation at close.
• ✓Payment terms — cash at close, seller financing (a note the seller carries), and any earnout (a portion of price contingent on future performance).
• ✓Financing contingency — that closing is conditional on you securing acquisition financing (e.g., an SBA or bank loan).
• ✓Exclusivity / no-shop period — the seller agrees not to negotiate with other buyers for a set window (often 60-90 days). This is the single most important protection for the buyer.
• ✓Due diligence period — how long you have and your access to records, with closing conditional on satisfactory diligence.
• ✓Key conditions to close — financing, clean diligence, lease assignment, key-employee retention, and required consents.
• ✓Escrow / holdback — a portion of price held back to cover post-close issues or the working-capital true-up.
• ✓Transition — the seller's role and time commitment after close.
• ✓Expiration — a date the offer lapses, which keeps momentum.

How much detail is right?

There's a tension. A detailed LOI surfaces disagreements early — better to discover you're $300k apart on price now than after $30k of diligence — and gives you firmer ground later. But an LOI that reads like a full purchase agreement can stall the deal and sour the relationship before diligence even starts. The practical sweet spot: be specific on the terms that matter most (price, structure, exclusivity, earnout/seller-note, key conditions) and leave the fine print to the definitive agreement.

Common mistakes that cost buyers

• ✓Weak or missing exclusivity — doing diligence while the seller keeps shopping the deal.
• ✓Vague price mechanics — not stating asset vs. stock, or how working capital and debt are treated, invites a fight later.
• ✓No financing contingency — committing without protection if your loan falls through.
• ✓Skipping the structure question — asset vs. stock has major tax and liability implications; decide early with your advisors.
• ✓Treating it as "just a formality" — the LOI sets the anchor for every later negotiation. Loose terms here echo through the whole deal.

After the LOI: confirmatory diligence

Once the LOI is signed and exclusivity starts, the clock is running on diligence — the document-heavy stretch where you confirm the business is what the seller represented. Work a due diligence checklist, and reconcile every claim against the source documents. That reading and cross-checking is the slow part Deal OS helps compress, returning source-cited findings from the deal workspace so you use the exclusivity window on judgment, not grinding through PDFs. It supports your diligence; it doesn't replace your deal counsel — and an attorney should draft or review any LOI before you sign.

Frequently asked questions

Is a letter of intent legally binding? Mostly no — the price, structure, and conditions in an LOI are usually non-binding, an agreement to try to agree, with the final terms set in the purchase agreement. But a few clauses — typically exclusivity, confidentiality, and expense provisions — are binding once signed. The LOI should state clearly which provisions bind the parties.

What should a letter of intent to buy a business include? Purchase price and structure (asset vs. stock), what's included, payment terms (cash, seller financing, earnout), a financing contingency, an exclusivity/no-shop period, the due diligence period and access, key conditions to close, any escrow/holdback, the seller's transition role, and an expiration date.

How long is the exclusivity period in an LOI? Often 60-90 days, though it varies with deal complexity and financing. The exclusivity (or no-shop) period stops the seller from negotiating with other buyers while you spend money on diligence, and it's the single most important protection for a buyer in the LOI.

What is the difference between an asset purchase and a stock purchase? In an asset purchase you buy specific assets and generally leave most historical liabilities behind; in a stock (or equity) purchase you buy the company itself, inheriting its liabilities along with its contracts and licenses. The choice has significant tax and liability consequences, so decide it early with your advisors and state it in the LOI.

Set the terms before you spend on diligence

If you've got an LOI signed and the exclusivity clock running, book a 15-minute walkthrough of how Deal OS turns a workspace of documents into cited diligence findings — so you spend the window on the questions that matter.