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A letter of intent (LOI) is one of the most misunderstood documents in a small business sale — it feels like a major milestone, and it is, but it locks in far less than most first-time sellers assume, which matters a great deal for how you should treat the period right after signing one.
What an LOI Typically Locks In
A standard LOI establishes the proposed purchase price, the basic deal structure (asset vs. stock sale, cash vs. financed, any seller financing or earnout), an exclusivity period during which you agree not to negotiate with other buyers, and a rough timeline toward closing. These terms represent a genuine, good-faith agreement on the deal’s shape.
What an LOI Does Not Lock In
Almost everything else remains non-binding and subject to change based on due diligence findings: the final price can be renegotiated downward if diligence reveals problems, financing isn’t guaranteed until the buyer’s lender formally approves it, and either party can generally walk away without major penalty before the definitive purchase agreement is signed. This is exactly why deals that looked settled at LOI stage sometimes fall apart or get repriced weeks later.
Why the Exclusivity Period Is the Real Commitment
The most binding practical element of most LOIs is the exclusivity clause, which prevents you from shopping the deal to other buyers for a defined period (commonly 60-90 days). This is a real commitment on your side — during exclusivity, you’re taking your business off the market based on one buyer’s stated intent, so it’s worth negotiating a reasonable exclusivity length rather than an open-ended one, and including provisions for what happens if that window expires without closing.
Protecting Yourself During the Gap
Because so much remains negotiable after LOI, continue running the business exactly as you would if the deal weren’t happening — don’t defer maintenance, don’t let service quality slip, and don’t make major decisions assuming the sale is guaranteed. If the deal falls through, and a meaningful percentage do, you’ll want the business in the same strong position it was in when you first decided to sell.
The Bottom Line
Treat an LOI as a serious signal of intent and a real step forward, but not as a done deal. The definitive purchase agreement, not the LOI, is what actually binds both sides — until that’s signed, stay engaged and keep the business running at full strength.
