What Goes in a Letter of Intent, and What Changes Before Closing
The letter of intent (LOI) is the document that turns a negotiation into something that looks like a real deal. It's also widely misunderstood by first-time buyers, who sometimes treat it as a final agreement and sometimes treat it as barely worth the effort, since "it's non-binding anyway." Both reactions miss what the LOI actually does.
What's binding and what isn't
An LOI is typically 3 to 10 pages, and roughly 90% of it, the price, structure, and deal terms, is explicitly non-binding. It's a statement of intent and shared understanding, not an enforceable contract for those terms. A small handful of sections are the exception and usually do bind both parties from signature: confidentiality, exclusivity (also called a "no-shop" clause), and sometimes an agreement on who pays certain expenses if the deal falls apart.
That distinction matters in practice. You can walk away from the economic terms in an LOI if diligence changes the picture. You generally can't walk away from the exclusivity period and start shopping the deal to another seller, or start talking to the seller's competitors, without breaching the parts of the LOI that do bind you.
What a typical LOI actually contains
- Purchase price and structure. The headline number, and whether the deal is structured as an asset purchase or an entity purchase, which matters for taxes, liabilities, and (for SBA-financed deals) how the loan gets underwritten.
- Payment terms. The split between cash at closing, any seller note, and any earnout, along with the note's basic terms.
- Diligence period. How long you have to investigate the business before you can walk away without penalty, commonly 45 to 60 days for a small to mid-size deal.
- Exclusivity period. How long the seller agrees not to shop the business to other buyers while you're in diligence, commonly 30 to 90 days.
- Key assumptions. Working capital targets, what's included in the sale (domain, code, customer list, social accounts, ad accounts), and any conditions the deal depends on, like a lender's approval.
What actually changes between signing and closing
Here's the part most LOI guides skip: it's common, not rare, for a real share of an LOI's terms to shift before closing. Experienced attorneys who work on these deals commonly expect somewhere in the range of 15% to 25% of an LOI's terms to change once diligence findings actually land, even in deals that ultimately close successfully.
That's not a sign the process failed. It's the diligence period doing its job: the LOI reflects what both sides believed going in, and diligence is where you test those beliefs against actual data. A few things commonly move:
- Price, when a QoE review or your own reconciliation turns up earnings that don't fully support the original number.
- Working capital targets, once you actually see typical inventory or receivables levels rather than a rough estimate.
- Payment structure, when a lender's final underwriting terms differ from what was assumed when the LOI was drafted.
- Transition and non-compete terms, once both sides have had more conversations and think through specifics that weren't fully addressed in the original letter.
What this means for how you negotiate the LOI
Because the exclusivity and confidentiality provisions do bind you, and because the seller effectively takes the business off the market for you during that period, it's worth negotiating the LOI itself carefully rather than rushing to sign so diligence can start. At the same time, don't treat every number in it as locked in stone. The realistic expectation is a document that's directionally right and detailed enough to guide diligence, not one that's guaranteed to match the final purchase agreement line for line.
Next: once diligence findings are in hand, negotiating price and terms is where you actually put that leverage to use before the final agreement is signed.