A Key Milestone Toward a Successful Deal
When selling a business, one of the most important steps in the transaction process is the signing of a Term Sheet or Letter of Intent (LOI). This document outlines the buyer’s proposed terms and serves as the foundation for moving into due diligence, negotiations, and ultimately, the final purchase agreement.
If you’re a business owner considering a sale—or a buyer preparing an offer—understanding the LOI is critical to protecting your interests and setting the right tone for the deal.
📄 What Is a Letter of Intent (LOI) or Term Sheet?
A Letter of Intent (sometimes called a Term Sheet or Memorandum of Understanding) is a non-binding agreement that outlines the key terms and conditions under which a buyer intends to purchase a business. It’s usually signed after preliminary conversations and financial reviews, but before full due diligence begins.
Think of the LOI as a handshake in writing—it doesn’t finalize the deal, but it shows both parties are serious and ready to move forward.
🧩 What Does an LOI Typically Include?
While every deal is unique, most LOIs cover the following:
1. Purchase Price and Structure
- Total proposed price
- Whether it’s an asset sale or stock sale
- Terms of payment (cash, financing, earn-out, seller carry, etc.)
2. Deposit or Escrow Terms
- Whether the buyer will place a refundable or non-refundable deposit in escrow
- Conditions for release or refund
3. Due Diligence Period
- Length of time the buyer has to inspect financials, contracts, and operations
- What access the buyer will have during this period
4. Exclusivity Clause
- A period during which the seller agrees not to negotiate with other buyers
- Often lasts 30 to 90 days
5. Transition or Training Period
- Whether the seller will stay on to help with the transition post-closing
- Length and scope of support provided
6. Contingencies
- Buyer financing
- Satisfactory due diligence
- Lease assignment or landlord approval
7. Confidentiality and Non-Solicitation
- Reaffirmation of earlier NDAs
- Agreement not to poach employees or customers if the deal doesn’t close
8. Binding vs. Non-Binding Clauses
Most of the LOI is non-binding (subject to final agreement), but certain parts—like exclusivity, confidentiality, or deposits—can be legally binding.
💼 Why the LOI Matters
For sellers, the LOI offers:
- A clear snapshot of the buyer’s intentions
- Confidence that the buyer is serious
- A basis for evaluating deal terms before investing time in full due diligence
For buyers, it:
- Helps lock in negotiation terms before legal expenses pile up
- Reduces the risk of being outbid while performing due diligence
- Provides structure and timeline for the next steps
🧠 How a Business Broker Helps
An experienced business broker plays a key role during this stage by:
✅ Guiding Negotiations
We help ensure the proposed terms are realistic, aligned with market conditions, and in the seller’s best interest.
✅ Drafting or Reviewing the LOI
While the final document should be reviewed by an attorney, brokers often assist in drafting initial LOIs or reviewing those submitted by buyers.
✅ Managing Expectations
We act as the buffer between buyer and seller, keeping communication professional and solutions-focused—especially when revisions or counteroffers are needed.
✅ Facilitating the Deal Timeline
Once the LOI is signed, we coordinate due diligence, lender communication, landlord negotiations, and transaction milestones to keep the deal on track.
🔚 Final Thoughts
The Letter of Intent is more than just a formality—it’s a pivotal document that can make or break a deal. It sets the tone for the rest of the transaction and helps both sides move forward with clarity and confidence.
Whether you’re selling your business or planning to buy one, having a knowledgeable business broker in your corner ensures that your interests are protected and that you’re positioned for success from the very beginning.
At Zeal Business Brokers, we’ve guided hundreds of business owners and buyers through LOI negotiations and into successful closings. If you have questions about this process, we’re happy to help.
