OnwardLearn · Selling · Step 8. Agree on the terms
Offers and the letter of intent, explained
The short version
- Offers usually arrive in writing, as a short letter setting out the price and main terms.
- The letter you sign with the buyer you choose is called a [letter of intent](/learn/reference#letter-of-intent "The offer document. It sets out the price, the structure and the main terms, and starts diligence."), or LOI.
- Most of an LOI is not binding. A few parts are, especially exclusivity and confidentiality.
- The LOI shapes everything that follows, so negotiate it carefully, with your M&A attorney.
- Signing an LOI starts due diligence and the buyer's financing, and usually takes you off the market.
How offers arrive
Serious buyers usually put their offer in writing. Some start with a short indication of interest: a range of price and a rough structure, before they have seen everything. Others go straight to a letter of intent.
What a letter of intent is
A letter of intent is a short document, often a few pages, that sets out the main terms of the sale before the full purchase agreement is written. It usually covers:
- The price, and how it will be paid: cash at closing, a note you carry and any money held back.
- What is being sold: the company itself or its assets. Lesson 8.6 covers the difference.
- What is included: equipment, inventory, working capital and real estate, or not.
- Your role after closing, and for how long.
- Due diligence: how long the buyer has to check the business.
- Financing: how the buyer will pay, and whether the deal depends on getting a loan.
- Exclusivity: a period when you agree not to talk with other buyers.
- Confidentiality.
- A target closing date.
Binding and not binding
Most of an LOI is not binding. Either side can usually walk away, and the price can still change after due diligence.
A few parts are binding. They usually include exclusivity, confidentiality and who pays which costs. Lesson 8.2 covers what you agree to when you sign.
Why the LOI matters so much
Even though most of it is not binding, the LOI sets the frame for the rest of the sale. Terms left vague at this stage often get settled later in the buyer's favor, because by then you have stopped talking with other buyers.
It pays to be specific now about the things that matter to you: how much you receive at closing, how any note works and what your role will be.
What happens after you sign
- The buyer starts due diligence, checking everything in your data room.
- The buyer's lender starts its review, including its own valuation if it is an SBA loan.
- Your M&A attorney and the buyer's attorney begin the purchase agreement.
- You stop talking with other buyers, if you agreed to exclusivity.
Take this to your own people
The questions for this topic, for your attorney, your accountant or your lender.
- For your M&A attorney: "Which parts of this letter of intent are binding, and what do they commit me to?" Listen for: each binding clause named, with what it means for you.
- For your M&A attorney: "What is missing from this letter of intent that should be settled now?" Listen for: specific gaps, such as how a note works, what is included and your role after closing.
- For your accountant: "How would the price and structure in this letter affect what I keep?" Listen for: an estimate using the math from Lesson 3.7.
This names the question. Your CPA, your M&A attorney and your lender answer it for your situation.
When you’re ready
How a sale actually happens, in plain language — before you decide anything. Make a free account — nothing is shared