The Funnel, Ep. 11: What's an "LOI"?

As you move closer to selling your business, the questions stop being theoretical and start becoming very real. At this stage of the funnel, you’ve likely decided that a sale is possible—but you still want clarity on the documents, terms, and commitments that show up before anything is final. One of the most misunderstood pieces of the process is the Letter of Intent, commonly referred to as an LOI. It’s talked about constantly, often used incorrectly, and frequently signed without fully understanding what it actually does—and doesn’t—mean for you as a seller.

This episode breaks it down clearly, so you know exactly where an LOI fits into the sale of your business and how to think about it before you ever sign one.

An LOI, or Letter of Intent, is a written document that outlines the basic terms under which a buyer proposes to acquire your business. It typically comes after initial conversations and early indications of interest, but before a definitive purchase agreement. Importantly, an LOI is not the sale of your business. It is a framework that allows both sides to agree on major points—price, structure, timing—so the buyer can justify entering formal due diligence. While parts of the LOI may be binding, the transaction itself is not finalized at this stage. Understanding this distinction is critical. Many founders either overestimate the security of an LOI or underestimate the constraints it creates once signed.

LOI vs. Indication of Interest

Before an LOI, buyers often share an Indication of Interest (IOI). An IOI is informal and exploratory. It may reference valuation ranges or high-level deal ideas, but it does not typically trigger exclusivity or formal diligence. An LOI is different. It signals that the buyer is serious enough to invest time, money, and internal resources into evaluating your business with the intent to complete a transaction.

What an LOI Usually Includes

Confidentiality acknowledgment: This reinforces that sensitive information shared during diligence must remain protected.

Proposed valuation and structure: This may be a specific price or a price range, along with whether the deal is structured as an asset sale, stock sale, recapitalization, or merger.

Financing assumptions: The buyer may outline how the transaction will be financed, including debt, equity, rollover expectations, or earn-outs.

Exclusivity period: This is one of the most important sections. Once signed, you typically agree not to speak with other buyers for a defined period—often 60 to 120 days.

Due diligence expectations and timing: The buyer will describe what information they need and how long they expect diligence to take.

Exclusivity gives the buyer confidence to move forward, but it also limits your leverage. Once you agree to it, you cannot continue parallel negotiations with other buyers—even if another party expresses interest. Violating exclusivity is not a technicality. It can be legally actionable. This is why the terms of exclusivity, including length and scope, deserve careful review before signing. That said, exclusivity does not mean you are trapped. If diligence reveals issues, or if the relationship deteriorates, an LOI can be terminated. While it may require negotiation, sellers are not obligated to proceed with a deal that no longer makes sense.

Is an LOI Binding?

An LOI is generally non-binding with respect to the sale itself. You are not legally required to sell your business just because you signed one. However, certain sections—such as confidentiality, exclusivity, and sometimes break-up fees—are binding. Those provisions must be honored. This balance is why LOIs feel deceptively informal. They are not the final agreement, but they absolutely shape what happens next and how much flexibility you retain.

Founders should never sign an LOI without experienced counsel. At a minimum, that means an M&A attorney. Ideally, it also includes an advisor who understands market terms and buyer behavior. Small wording differences can affect leverage, timeline, and risk. An LOI that looks “standard” may still favor the buyer in subtle but meaningful ways.

How Candor Advisors Helps at the LOI Stage

At the LOI stage, decisions move fast and consequences compound quickly. This is where experienced guidance can materially change outcomes. Candor Advisors works with founders to evaluate LOIs in the context of the full transaction—not just the headline price. That includes assessing exclusivity terms, financing assumptions, diligence scope, and how the LOI positions you for negotiations that follow. An LOI should move you closer to the right deal, not lock you into the wrong one. With the right preparation and advice, it becomes a tool—not a trap—as you move toward closing.