The Letter of Intent (LOI)
The usually non-binding document a buyer submits to outline proposed price and terms before due diligence begins.
What an LOI Is
A letter of intent is the first written offer in a business sale. It outlines the proposed price, the deal structure, timelines, confidentiality, and often a period of exclusivity, and it sets the terms both sides will pursue through due diligence and into the definitive agreement. McDannell describes it as a non-binding written offer that, once signed by both parties, moves the deal toward due diligence. For larger acquisitions (roughly $10M and up), the equivalent first document is the IOI, the indication of interest.
The defining feature is that the LOI is usually not binding. Warrillow draws the contrast sharply: the LOI is a usually non-binding document, while the definitive purchase agreement is the final binding contract. Burlingham frames it the same way.
"Preliminary, mostly non-binding document outlining the understanding reached before due diligence and the definitive agreement."
Burlingham, Finish Big, glossary
Because it is non-binding, a signed LOI is not a sale. As Warrillow notes, an owner who feels "days from selling" has often signed an LOI only to watch the deal die later in diligence.
What the LOI Decides
The LOI is where price and terms get pinned down before the buyer commits real diligence cost. Warrillow's chapter on the document takes its title from the acquirer's adage that separates the headline number from everything else around it.
"You set the price, I'll set the terms."
Warrillow, The Art of Selling Your Business, ch. 14
Currency, timing, earnout, seller financing, and working capital can matter as much as the price itself, so the terms inside the LOI shape the seller's actual after-tax proceeds. Warrillow argues this is exactly why a specialist M&A attorney belongs at the table by the time the LOI is negotiated, to counterbalance a deal-hungry intermediary.
"A good lawyer's job is to protect your blind side."
Warrillow, The Art of Selling Your Business, ch. 14
The Exclusivity Trap
Most LOIs include a no-shop clause, also called a period of exclusivity, that requires the seller to stop talking to other buyers during diligence. Both Warrillow and McDannell treat this clause as the moment a seller's leverage shifts. Once the business is off the market, the buyer can take its time, dig, and re-trade. Warrillow's framing is that leverage collapses at the LOI: signing the no-shop swings power to the buyer, who can then drag diligence and lower the price near close. (See Leverage Collapses at the LOI.)
McDannell counters with two practical defenses. First, negotiate modified exclusivity language so the listing stays live as "under offer, accepting backups," and keep collecting backup leads even after signing. Second, set the no-re-trading expectation out loud at signing.
"Declare at LOI signing that retrading won't be tolerated."
McDannell, Get Acquired, ch. 6
She credits saying this up front, not "manifesting" it, as the reason she has never had a buyer re-trade.
Why It Is Not the Finish Line
The danger of the LOI is treating it as the end of the work when it is closer to the middle. McDannell is blunt that the hardest stretch comes after the document is signed.
"It's not finding the buyer that's the hardest part. It's from LOI to the date that money is wired into the account."
McDannell, Get Acquired, ch. 7
The period between LOI and closing is due diligence, the stage where many deals fall apart. Keeping competitive tension alive, capping the diligence window, and refusing to relax leverage all matter precisely because the signed LOI is a beginning, not a guarantee.
Further Reading
Sources: McDannell, Get Acquired ch.6-7; Warrillow, The Art of Selling Your Business ch.14; Burlingham, Finish Big.