A Letter of Intent is basically a preliminary agreement between you and a buyer. It outlines the basic deal terms before the attorneys get involved and draft the actual purchase agreement. It’s the moment where you and the buyer agree on price, structure, and major conditions—before legal documents lock everything down.

The LOI is also where a lot of sellers get confused. Some terms in an LOI are binding. Some aren’t. And if you don’t understand the difference, you can accidentally commit to something you didn’t intend.

What’s In an LOI

A typical Letter of Intent covers:

Purchase price — the total amount and how it’s split (cash at closing, earnouts, seller financing, etc.) Deal structure — asset or stock sale Earnout terms — if applicable, the targets, duration, and measurement method Non-compete — duration, geography, industry scope Transition period — how long you’ll stick around post-closing to help integrate Due diligence timeline — how long the buyer gets to investigate Conditions to closing — what has to be true for the deal to happen (financing approval, no material change in business, etc.) Contingencies — what either party can exit on

An LOI is typically 2-5 pages. It’s not a fully detailed agreement—that comes later. But it has enough specificity that both parties understand what they’re committing to.

The Timeline

Here’s how it usually goes: you reach a handshake agreement with a buyer. One of your attorneys (or the buyer’s) drafts an LOI. You and the buyer negotiate the LOI terms over a few days to a week. Once you sign, the LOI goes into effect.

At that point, the buyer starts due diligence, which typically takes 30-90 days. While due diligence is happening, the attorneys are drafting the Purchase Agreement—the full legal document that will be the final binding agreement.

So the timeline from LOI to closing is usually 30-45 days from LOI signature to Purchase Agreement signature, then another 30-60 days for closing logistics and final coordination. All told, you’re looking at 60-120 days from LOI to done, depending on complexity.

Binding vs. Non-Binding

Here’s the critical part: an LOI typically has some binding terms and some non-binding terms.

Usually binding: exclusivity (you can’t shop the business to other buyers during the LOI period), confidentiality (both parties keep deal terms private), and expenses (each party pays their own legal and advisory fees).

Usually non-binding: the price, structure, earnout terms, and most operational terms. These are treated as expressions of intent—the buyer is saying “we intend to buy at this price,” not “we’re locked in.” The binding agreement comes with the Purchase Agreement, which is drafted after due diligence.

But here’s the trap: the LOI language matters. If your LOI says “This agreement is binding except for the following exceptions…” and then lists only a few things, you might have inadvertently made the price binding. Or if it says “Buyer’s obligation to close is contingent upon due diligence being satisfactory,” you’ve given the buyer a way to walk away if they don’t like what they find.

Red Flags in an LOI

Some LOI terms are warning signs:

Vague conditions. If the LOI says the buyer can exit if due diligence is “unsatisfactory” without further definition, that’s too loose. What’s unsatisfactory? Everything? A slightly lower profit margin? Negotiate for specific, objective conditions.

No exclusivity or a short exclusivity period. Exclusivity means you can’t shop your business to other buyers while the LOI is active. Without it, the buyer has no incentive to move fast and you could be negotiating with someone who’s not committed. Typical exclusivity is 60-90 days.

Unrealistic due diligence timeline. If the buyer wants to complete due diligence in two weeks, that’s a red flag that either they’re not serious or they’re going to pressure you to accept unfavorable findings. 45-60 days is standard for a reason.

Buyer can walk away for any reason. Some LOIs say the buyer’s obligation is conditioned on “satisfactory due diligence” or “buyer satisfaction.” That basically lets them walk for any reason. Better language: “Buyer’s obligation to close is conditioned on financials being consistent with representations, key employees committing to stay, and no material adverse change in business.”

Overly restrictive earnout or non-compete. If you’re being asked to sign an LOI with a 40 percent earnout or a five-year non-compete, negotiate before you sign. Once you sign the LOI, you’ve basically accepted these terms in principle and it’s hard to backtrack.

How to Approach an LOI

When you receive an LOI from a buyer, read it carefully and don’t just accept it as presented. Treat it like a negotiation. You can push back on price, structure, earnout terms, non-compete, and conditions. This is your chance to shape the deal before it gets locked in legally.

Get your attorney to review it before you sign. They can spot problematic language and flag conditions that are too loose or too tight. A good attorney will also make sure your concerns are addressed in writing—don’t rely on verbal promises from the buyer.

Understand which terms are binding. If the buyer is asking you to commit to something you’re not comfortable with, that should be a non-binding expression of intent or specifically conditioned on due diligence findings.

The LOI is not the final agreement, but it sets the stage for everything that comes after. Negotiate it seriously, understand what you’re committing to, and make sure both parties are aligned on the major deal terms. Once you sign, you’re in motion, and backing out becomes difficult and expensive.