The Letter of Intent: How to Write an LOI That Gets Deals Done

Most acquisitions fail before due diligence even begins. The deal falls apart not because the numbers are wrong, but because the letter of intent was vague, one-sided, or never sent at all. A well-crafted LOI is the bridge between a promising conversation and a signed purchase agreement. Get it right and you control the momentum. Get it wrong and you lose the deal to a buyer who looked more serious on paper.

This post breaks down exactly what belongs in a business acquisition LOI, which terms are negotiating leverage, and how to structure the document so it moves the seller toward yes.

What an LOI Actually Is (and Is Not)

A letter of intent is a non-binding document that outlines the key terms of a proposed acquisition. It signals serious buyer intent, establishes a shared understanding of the deal structure, and grants the buyer a period of exclusivity to conduct due diligence. Most LOIs run two to five pages.

The critical word is non-binding. With one important exception: the exclusivity and confidentiality provisions are typically binding, even when everything else is not. That means a seller who signs your LOI is agreeing to stop talking to other buyers while you conduct your review. That is a significant concession, and sellers know it. Your LOI needs to be compelling enough that they are willing to make it.

The Seven Core Elements of a Strong LOI

1. Purchase Price and Structure. State the headline number and how it is broken down. Is this an asset purchase or a stock purchase? How much is being paid at closing? How much is deferred through a seller note or earnout? Sellers read the price first and the rest second. Lead with clarity, not intentional vagueness.

2. Deal Structure Details. If you are using seller financing, specify the note amount, interest rate, and repayment term. If there is an earn-out component, define the metric (typically EBITDA or gross revenue), the measurement period, and the payout schedule. Vague earn-out language in an LOI becomes a fight during purchase agreement drafting. Be precise now.

3. Assets or Stock Included. List what is being purchased. For asset deals, include a short description of the assets (equipment, intellectual property, customer lists, goodwill, inventory) and explicitly note any excluded assets. For stock deals, specify the percentage of equity being acquired. This section prevents misaligned expectations that surface at closing.

4. Working Capital Peg. Define how much working capital will be left in the business at closing. A normalized working capital peg protects both parties. Without it, sellers can drain receivables before closing or buyers can demand a cash infusion post-close. A typical LOI specifies a target based on a trailing twelve-month average, with a true-up mechanism in the purchase agreement.

5. Exclusivity Period. This is the binding crown jewel of your LOI. Request 45 to 90 days of exclusivity, during which the seller agrees not to solicit, entertain, or advance discussions with other buyers. This gives you protected time to complete due diligence and negotiate the purchase agreement. Anything shorter than 45 days is usually not enough for a thorough review. Anything longer than 90 days may make a seller nervous.

6. Due Diligence Scope. Briefly outline what you will be reviewing: financial statements, tax returns, customer contracts, employee agreements, leases, and any pending litigation. This sets expectations and signals that you are a sophisticated buyer who knows what to look for. It also gives you grounds to renegotiate or exit the deal if material issues surface. For a complete list of what to request, see the due diligence checklist for first-time buyers.

7. Closing Conditions and Timeline. State your expected timeline from LOI signing to close, typically 60 to 120 days depending on deal complexity. List the major conditions that must be satisfied: completion of due diligence, receipt of financing commitments, landlord consent on lease assignments, and any regulatory approvals. A deal with a clear path to close feels more real to a seller than one with an open-ended timeline.

The One Paragraph Most Buyers Skip

Include a brief seller transition section. State that you expect the seller to remain with the business in a consulting or advisory capacity for 6 to 24 months post-close, at a reasonable consulting fee. This single paragraph does three things: it reassures the seller that their departure will be gradual, not abrupt; it gives you institutional knowledge protection in the purchase agreement; and it signals to the seller that you understand how small businesses actually work.

Sellers who have built businesses over 20 or 30 years are not just selling a financial asset. They are handing over something they care about. Acknowledging that in your LOI separates you from financial buyers who treat the transaction purely as a spreadsheet exercise.

Tone and Length

Keep your LOI under five pages. A ten-page LOI signals that you are trying to negotiate the entire purchase agreement upfront, which is annoying for sellers and their advisors. The LOI should establish enough structure to protect both parties and keep the deal on track, not anticipate every possible dispute.

Write in plain English. Avoid excessive legalese. The seller is reading this, not just their attorney. A document that is easy to understand creates confidence in you as a buyer. A document that requires three attorneys to decipher creates anxiety.

The LOI is not just a legal document. It is a sales document. Its job is to get the seller to say yes to exclusivity and start the clock on your path to ownership.

Common LOI Mistakes That Kill Deals

Waiting too long to send it is the most common error. Once you have had two or three conversations with a seller and have access to their financials, send the LOI. Buyers who talk for months without committing to paper signal that they are not serious. Sellers move on.

Lowballing in the LOI is the second most common mistake. If you want to negotiate price, do it in conversation before the LOI. An LOI that comes in significantly below the seller's expectations after weeks of friendly discussion destroys trust and rarely recovers. Come in at a number you can justify and be ready to defend your valuation logic.

Omitting the exclusivity ask is a structural error. Some buyers, worried about being too aggressive, send an LOI without requesting exclusivity. This is a mistake. Exclusivity is the entire point of the LOI from the buyer's perspective. If you are not comfortable asking for it, you are not ready to be making offers.

After the LOI Is Signed

Move fast. Once the seller grants you exclusivity, every day of delay works against you. Send your due diligence request list within 48 hours. Engage your attorney on the purchase agreement within the first week. Maintain momentum with weekly check-ins. Deals that go quiet after LOI signing die slowly, and when they do, it is almost always the buyer's fault.

Whether you are buying with no money down or using a conventional financing structure, the LOI is where your acquisition either gains real traction or quietly dies. Get comfortable writing them, send them sooner than you think you should, and treat every signed LOI as the starting gun, not the finish line.

For complete LOI templates, negotiation scripts, and real deal examples, pick up a copy of Creative Acquisitions.