At some point talking has to become an offer. The letter of intent is that moment: a letter to the seller or their broker stating what you'll pay, how the deal is structured, what you need to see, and how long you need to see it.
It's the cheapest serious step in an acquisition. No lawyer has drafted a purchase agreement yet, no money has moved, and the entire purpose is to find out whether you and the seller are close enough to be worth the expense of finding out properly.
What an LOI actually does
Three things:
- Puts a number on the table. Everything before this is theoretical.
- Sets the terms you'll negotiate from. Structure, financing, timeline. Whatever you propose here becomes the baseline — and you'll be moving away from it, not towards it.
- Buys you exclusivity. In exchange for committing to real diligence at your own cost, the seller agrees to stop shopping the business for an agreed window.
Which parts are binding
This is the single most misunderstood thing about an LOI, and getting it wrong is expensive.
The commercial terms — the price, the structure, the timeline — are normally non-binding. Either side can walk away without owing the other the deal.
Several clauses usually are binding from the moment you sign:
| Clause | What it commits you to |
|---|---|
| Exclusivity / no-shop | The seller stops marketing the business for a set period. Real obligation, on them. |
| Confidentiality | What you may do with what you learn. Real obligation, on you. |
| Expenses / break fees | Who pays what if the deal collapses. Read this one specifically. |
| Governing law and dispute terms | Where and how any argument about the above gets settled. |
So "the LOI is non-binding" is true about the part everyone focuses on and false about several clauses nobody reads. Read those clauses individually rather than trusting the heading.
The terms you actually have to decide
Most LOI templates fill themselves in with conventional defaults. Three of them deserve thought rather than acceptance.
The price. If diligence has already turned up a gap between stated and verified earnings, this is where that gap becomes money. Offering the asking price on earnings you've disproved means paying the difference yourself. Ideally you make the offer after verifying the numbers, not before.
The diligence period. Thirty days is the common default and it's often optimistic — it has to cover reviewing everything, getting financing lined up, and backing out cleanly if you need to. If you require lender approval inside that window, ask for longer at the outset; extending later costs goodwill you'd rather spend elsewhere.
The exclusivity period. The seller wants it short and you want it long enough to finish. It should comfortably cover your diligence period. Exclusivity that expires mid-diligence puts the business back on the market at the exact moment you've spent the most and committed the most.
What's usually in one
Beyond price and the binding clauses, a complete LOI for a small business generally covers:
- The parties — you or your acquiring entity, and the seller. Note that the person the letter is addressed to (often a broker) and the person who signs (the owner) are frequently different.
- Deal structure — asset purchase or stock purchase. Asset is the usual default for small businesses.
- How the price is funded — cash at closing versus debt, and what kind of debt.
- Earnest money, if any, and the conditions under which it's returned.
- The document list you expect the seller to produce, and how quickly.
- Transition terms — how long the seller stays on after closing, at what commitment, and the non-compete.
- How long your offer stands before it expires.
After it's signed
The clock you just agreed to is running. The diligence period is now the window in which you verify everything — including whatever the seller hadn't given you when you made the offer.
If verification moves the earnings materially, the LOI is the document you renegotiate against, and the reason you put your price in writing with a sentence of grounding behind it.
Acquire Scout drafts a complete broker-style LOI from a deal you've already analysed, so the price you offer agrees with the earnings you verified — see the LOI generator walkthrough.