A Letter of Intent When Buying A Business: What To Include
What Is The Purpose of A Letter of Intent For A Business Purchase?
The LOI usually serves THREE main purposes, namely:
It sets out the price and main terms of the deal.
It shows both sides are serious enough to move forward.
It creates a plan for how the process will continue.
While an LOI is usually not legally binding as a full contract, some of its parts can be binding.
For example, the rules about confidentiality or a period of exclusivity often carry legal weight.
A buyer and seller should understand which parts are binding and which are not.
According to the American Bar Association, more than 70% of business sales begin with an LOI. This shows how common and useful this step is in business deals.
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What Are The Key Parts of a Letter of Intent
As we hinted earlier, a letter of intent covers the main terms of the deal, so both sides (buyer and seller) know what they are working toward.
Below, we outline the key parts that most LOIs include:
1. Purchase Price and Payment Terms
The first and most important part of an LOI is the purchase price. Both sides need to agree on how much the buyer will pay. The LOI should also state how the payment will be made.
For example, it should note if the price will be paid in full at closing, or if part of it will be paid later in installments.
If financing is involved, the LOI should say if the buyer needs a loan or if the seller will provide financing. This helps prevent surprises later.
2. Assets or Stock Being Sold
The LOI should clearly state what the buyer is purchasing. In many cases, the buyer purchases the assets of the business, such as equipment, inventory, and customer lists.
In other cases, the buyer purchases the stock or ownership shares. Each path has different tax and legal effects, so it is important to be clear from the start.
3. Due Diligence Period
A buyer usually needs time to review the company’s records before finalizing the deal. This is called due diligence.
The LOI should set out how long the due diligence period will last.
For example, many LOIs give 30 to 90 days. During this time, the buyer can review financial statements, tax returns, contracts, and employee records.
According to a 2023 report from Deloitte, around 50% of failed business deals fall apart due to problems found during due diligence.
This shows why it is important to set this step clearly in the LOI.
4. Confidentiality
Both sides may need to share private information. The LOI often includes a confidentiality clause.
This clause states that neither side can share business details with outsiders. This protects trade secrets and customer information.
5. Exclusivity
An exclusivity clause gives the buyer the right to negotiate with the seller without competition for a set time.
This means the seller cannot talk with other buyers during that period.
Most exclusivity clauses last from 30 to 90 days. This protects the buyer’s time and money investment in the deal process.
6. Closing Timeline
The LOI should set out an expected closing date. While the date can change, it gives both sides a target. For example, the LOI may say the deal should close within 60 days after the end of due diligence.
7. Conditions for Closing
The LOI should list the conditions that must be met before the deal can close. Some common conditions include:
The buyer securing financing.
The seller paying off debts.
Regulatory approvals if needed.
No major changes in the business during the deal process.
This section helps protect both sides if something unexpected happens.
8. Employee and Management Matters
The LOI may include terms about employees and management. For example, it can state if the buyer will keep the current staff or if the seller will stay on for a transition period.
This helps both sides understand what will happen after the sale.
9. Binding vs. Non-Binding Terms
It is vital to state which parts of the LOI are binding. As noted earlier, most of the business terms are non-binding.
But items like confidentiality, exclusivity, and cost-sharing are usually binding. The LOI should state this clearly to prevent disputes later.
Why Details Matter In An LOI
A clear LOI can save you and the seller both time and money. If the letter sounds too vague, the buyer and seller may later fight over terms.
Lawyers and accountants may then need to spend more hours, which increases costs.
According to PwC’s 2022 Mergers and Acquisitions report, average legal and advisory fees for mid-market deals in the U.S. run between 2% and 4% of the transaction value.
Thus, having a clear LOI can keep those costs from climbing higher by avoiding confusion.
[Template] Letter of Intent To Purchase A Business:
Below is a simple 1-3page Letter of intent template you can adapt to your own deal. It covers the main points buyers and sellers should agree on upfront, while leaving room for legal and financial advisors to finalize the details.
Date: [Insert Date]
Buyer: [Buyer’s Full Legal Name, Address]
Seller: [Seller’s Full Legal Name, Address]
1. Introduction
This Letter of Intent (“LOI”) sets out the main terms under which the Buyer proposes to purchase the business from the Seller. While this is not a binding agreement to complete the transaction, it provides a framework for moving forward in good faith.
2. Business Description
The Buyer intends to purchase [describe the business, its name, and location]. The transaction will involve the purchase of [choose: business assets / ownership shares].
3. Purchase Price and Payment Terms
Total Purchase Price: $[insert amount].
Payment Method: [e.g., full payment at closing / portion paid at closing and remainder in installments].
Financing: [state if Buyer requires financing or if Seller will provide financing].
4. Due Diligence
The Buyer will have [30 / 60 / 90] days to conduct due diligence, including review of financial statements, contracts, tax filings, and other relevant records.
5. Confidentiality
Both parties agree to keep all shared information private and not disclose it to outside parties except as needed for legal, tax, or financing purposes.
6. Exclusivity
The Seller agrees not to negotiate with other potential buyers for [30 / 60 / 90] days while this LOI is in effect.
7. Closing Timeline
The parties intend to close the transaction no later than [insert date or number of days after due diligence].
8. Conditions to Closing
The closing of the transaction will be subject to:
Buyer securing financing (if applicable).
Seller settling outstanding debts or obligations.
Necessary approvals or consents (if any).
No material changes to the business before closing.
9. Employees and Transition
[Optional: State whether the Buyer will retain current employees and/or if the Seller will stay on for a transition period].
10. Binding vs. Non-Binding Terms
This LOI is non-binding except for Sections 5 (Confidentiality), 6 (Exclusivity), and any provisions regarding cost-sharing of due diligence.
11. Next Steps
Both parties agree to work in good faith to prepare and sign a definitive purchase agreement.
Buyer:
Name:
Title:
Seller:
Name:
Title:
Common Mistakes to Avoid When Writing A Letter of Intent
Some buyers or sellers rush through the LOI to get to the main contract. This can cause problems. Common mistakes include:
Leaving out the payment structure.
Not setting a clear due diligence timeline.
Forgetting to mark which parts are binding.
Using vague language that leaves room for different views.
Be sure to avoid these mistakes if you want to make the whole process smoother.
A Letter of Intent For Buying A Business Frequently Asked Questions:
Here are some common questions about letters of intent and clear answers to help you understand the basics:
What should an intent letter contain?
A letter of intent should outline the main deal terms clearly. This includes the purchase price, payment terms, assets or stock being sold, due diligence period, exclusivity, confidentiality, and the closing timeline. It acts as a roadmap so both buyer and seller know what to expect before final agreements.
What are the seven elements that should be included in a letter of intent?
The seven key elements are purchase price, payment structure, assets or stock involved, due diligence terms, confidentiality, exclusivity, and closing conditions or timeline. These give a clear framework for negotiations and help both sides align expectations, making the process smoother and reducing the chances of confusion or disputes later.
How to write an LOI to buy a business?
To write a LoI to buy a business, you should start by stating both parties, the business being purchased, and the intent to move forward. Then outline the key terms: price, payment, due diligence, and timelines. Keep the tone professional, not overly detailed. The LOI is meant to set the path, not replace the final binding agreement.
What not to put in a letter of intent?
Avoid including overly detailed legal terms or binding obligations, except for clauses like confidentiality or exclusivity. Don’t commit to the final wording of contracts or operational promises. The LOI should outline the deal framework, not lock either party into terms that belong in the purchase agreement later.
How long should a letter of intent be?
A letter of intent should usually be between one and three pages. It needs to be long enough to cover key deal terms but not so detailed that it turns into a full contract. The goal is clarity and direction, not complexity, keeping negotiations open and manageable.
We Help You Buy / Build, Manage and Scale E-commerce Brands for an EXIT
E-commerce Simplified for Busy Individuals – We handle the buying, building, and scaling, so you can focus on what matters.
Growth-Focused Strategies – From sourcing to marketing, we drive growth and prepare you for a profitable exit.
Expertly Managed Exits – We build a high-value brand designed for a Lucrative exit.
The Bottom Line
A letter of intent is a critical first step when buying a business. It sets the main terms, shows both sides are serious, and gives a roadmap for the deal. The key parts include the purchase price, payment terms, assets or stock being sold, due diligence, confidentiality, exclusivity, closing timeline, conditions for closing, and employee matters.
A clear LOI helps prevent confusion, lowers the risk of disputes, and saves time and money. By putting effort into this first step, both buyer and seller increase their chances of a smooth and successful business sale.
If you’re planning to buy a business and want guidance beyond the LOI, ourSmart Acquisition service can help. We handle everything from structuring offers and due diligence to negotiations and closing, so in just 60 days, you could be running a profitable online business that’s ready to grow.
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