Here is the answer up front: the letter of intent is where sellers lose deals they think they have already won. The day you sign it, competition for your business ends and the chipping begins. Every term you leave open at signature gets negotiated later against a seller with no alternatives, mounting bills, and a growing emotional need to close. An hour of attorney review before you sign is worth more than months of negotiation after.
If the offer arrived out of the blue, start with my guide on what to do when someone wants to buy your business. This article picks up at the next step, when a written offer is actually in your hands. Most of my clients are the same main-street owners I help with LLC formation: landlords, contractors, and service businesses. The buyer across the table has usually done this many times. You will do it once. The LOI is where that experience gap costs real money, and where a small amount of preparation closes it.
What an LOI Is, and What "Non-Binding" Really Means
A letter of intent (also called a term sheet or heads of terms) is a short document, usually a few pages, in which a buyer proposes the price, the deal structure, and the process for getting to a signed purchase agreement. Nearly every LOI uses the same hybrid design: the deal terms are labeled non-binding, while a handful of provisions are expressly binding. The binding ones are almost always confidentiality and exclusivity, the promise that you will not negotiate with anyone else for a set period.
Look at what that design actually does. Everything you care about, starting with the price, does not bind the buyer. Everything the buyer cares about, your silence and your lockup, binds you. Buyer-drafted letters routinely reserve the right to withdraw at any time, for any reason, with no costs or damages owed. That asymmetry is by design: the LOI buys the buyer a low-cost option on your company while you sit contractually benched.
The "non-binding" label is also weaker protection than sellers assume. In one published case, Turner Broadcasting v. McDavid, the LOI's language saying no agreement existed until final documents were signed expired automatically with its exclusivity period. The parties kept negotiating, executives announced a deal, and a $281 million jury verdict for breach of an oral contract was upheld, because only the confidentiality terms had been drafted to survive. Two lessons: make the writing requirement survive the LOI's expiration, and watch what you say out loud once a letter is in play.
Exclusivity: The Leverage Cliff
Exclusivity, sometimes called a no-shop or preferred-bidder status, is your written promise not to talk to any other buyer while this one finishes due diligence and negotiates the contract. Buyers have a legitimate reason to want it: diligence costs serious money in accountant and attorney fees, and no buyer wants to spend it while you shop their offer around.
But understand what you are handing over. Competition, real or potential, is what set your price. The moment you grant exclusivity, that competition is gone, and the price is held up by nothing but the buyer's goodwill and reputation. The M&A literature is blunt about this: exclusivity is where competitive leverage dies, and the diligence period it protects is structurally the buyer's window for chipping the price. Meanwhile your alternatives go stale. A backup buyer who was told the process is over cannot be rewarmed on the timeline a retrade forces on you.
The moment just before your signature is your peak. The buyer needs the signed LOI almost as much as you need the deal, because it lets them credibly approach their lender and start spending on diligence. That need is your currency. Spend it on the terms below, because the morning after you sign, it is gone.
Been Handed an LOI This Week?
Send it to me before you sign it. I will tell you what binds you, what the exclusivity clause really costs, and what to push back on while the buyer still needs your signature.
The Retrade: How the Price Gets Chipped After You Sign
A retrade is when the buyer agrees to a price in the LOI and then lowers it during due diligence, after your alternatives are gone. It rarely arrives as an open renegotiation. It arrives dressed as findings: a receivable that looks slow, a customer concentration concern, an accounting adjustment, a contract that was never signed by the other side. Each finding becomes a price reduction request, often delivered with the explanation that the buyer's partners or lender "won't approve" the original number.
Sophisticated buyers understand that diligence is not just verification; it is a repricing mechanism. The pattern to expect: small asks first, to test whether you absorb them quietly; the larger asks later, timed to your exhaustion and sunk costs; and a final round of "small" points (a longer non-compete, a working capital tweak) in the last week, when you are emotionally committed to closing. The first small reopening of an agreed term is a test, and a seller who absorbs it silently signals that further chips are cheap.
To make the stakes concrete with a purely illustrative example: on a $1,000,000 deal, a five percent chip is $50,000, which is likely more than every professional fee in the transaction combined. The defenses are all built before signature: disclose known problems while you still have alternatives, because bad facts surfaced early get priced with competition and bad facts surfaced late get priced without it; get your books and records in order so the buyer cannot manufacture chips from missing paperwork (this is the heart of my guide to the exit-ready LLC); keep your runner-up buyer warm; and write retrade fencing into the LOI itself, which brings us to the terms that must be locked.
Five Terms to Lock While You Still Have Leverage
The rule of thumb: anything material that is still open when exclusivity starts will be settled later on the buyer's terms. So the LOI needs more than a headline number. Here is what I negotiate into it.
The price mechanism, not just the price
A number alone is an invitation to retrade. If the buyer cannot commit to a fixed number before diligence, state a range plus a written list of the specific factors that can move it, and add one sentence: any adjustment must trace to a specific finding not previously disclosed, quantified in dollars. A diligence argument that does not map to a listed factor was, by the parties' own writing, not part of the deal. And before you accept any anchor, know your own number; my guide to what your business is worth covers how main-street businesses actually get valued.
Working capital, at least at the concept level
Working capital is the everyday fuel in the business: receivables and inventory, minus payables. Buyers price a business assuming it comes with a normal level of that fuel included. If the LOI is silent, the buyer's accountants define "normal" months later, and their definition will not favor you. You do not need the final schedule at LOI stage, but you need the concept: how the normal level will be measured, over what historical window, and against your actual books, which your accountant should model before you agree to anything.
Exclusivity length, and the triggers that end it
Short, with an expiration date and conditions. For a main-street deal I push for 30 to 60 days, tied to a dated timetable: diligence requests delivered by one date, a draft purchase agreement by another, financing confirmed by a third. If a milestone slips, exclusivity ends automatically, and it extends only by your written consent. Watch for the quiet drafting trick where exclusivity runs for "the term of this letter," which can turn one bracketed number into a lockup of many months.
Deposit and break protections
The default LOI lets the buyer walk at any time for free while you sit locked up. Negotiate reciprocity: a good-faith deposit whose refundability steps down as diligence checkpoints pass, or a break fee or cost reimbursement if the buyer withdraws. Exclusivity is an option on your company, and options are paid for. In the same breath, ask for evidence the money exists: a lender commitment letter, or at least named financing sources.
Structure, in principle
Asset sale or membership interest sale changes your taxes, your liability tail, and the closing mechanics; I walk through both in my guide to selling your LLC in Illinois. If part of the price is contingent on future performance, that is an earnout, and its measurement concept belongs in the LOI, not the purchase agreement. Same if the buyer wants you to carry a note; the basic terms of any seller financing (amount, rate, security, term) are price terms and should be treated like price.
What I Tell Sellers to Refuse
Some LOI terms are not negotiating positions. They are traps, and the right answer is no, or a price for yes.
Two of these deserve a sentence more. First, buyer-drafted forms sometimes have the seller doing irreversible work during the lockup, terminating employees or shedding assets, while the buyer owes nothing if it walks. Never restructure your company on the strength of a non-binding letter. Second, do not let harsh terms slide in because "it's all non-binding anyway." A term agreed in principle becomes the starting point for the purchase agreement, and clawing it back later is uphill work against a buyer who will call it a done deal.
An Hour Before Beats Months After
Your bargaining power in a business sale declines steadily from the first phone call to the closing table. Problems disclosed and terms locked early, while the buyer still fears losing the deal, get the best resolution you will ever be offered. The same issues raised late get priced against you, because by then the only alternative to agreeing is blowing up months of work.
An LOI review is a small job sized to that curve. I read the document, tell you exactly which provisions bind you, mark up the exclusivity clause and its triggers, insert the price-mechanism and retrade fencing language, flag the structure and tax fork in the road, and hand you back a redline the buyer will recognize as the work of an advised seller. That last part matters on its own: buyers chip hardest at sellers who look alone.
I do not quote fees in articles because every deal is shaped differently, but the review itself starts with a free call. If you take one thing from this page, take this: the letter of intent is not the paperwork before the negotiation. It is the negotiation. Get an hour of review before you sign, not after.
Don't Sign It Yet.
A 30-minute call before signature costs you nothing. Signing away your leverage can cost you a meaningful piece of the price. Send me the LOI and let's walk through it together.
Frequently Asked Questions
Parts of it usually are. Most LOIs state that the price and deal terms are non-binding while the exclusivity and confidentiality provisions are binding. The label is not a shield, though. Courts have held parties to preliminary agreements when the document's own protections expired or the parties' conduct suggested a done deal, so treat every sentence as if it counts and have an attorney confirm exactly which provisions bind you before you sign.
As short as you can negotiate. For a main-street deal I push for 30 to 60 days, tied to milestones such as completion of due diligence and delivery of a draft purchase agreement, with automatic expiration and extensions only by the seller's written consent. Buyers often ask for 90 days or more with no conditions attached. Every unconditional week is leverage you are giving away for free.
A retrade is when the buyer agrees to a price in the LOI, then pushes it down during due diligence after your competing buyers are gone. It usually arrives dressed as a diligence finding: a working capital shortfall, a customer concentration concern, an accounting adjustment. The defenses are to disclose known problems before you sign, keep exclusivity short, and require in the LOI that any price adjustment trace to a specific new finding.
Under most LOIs, yes, at any time and without penalty, because the deal terms are non-binding. Meanwhile you are locked into exclusivity and cannot talk to anyone else. That asymmetry is negotiable. You can ask for a good-faith deposit, a break fee or cost reimbursement if the buyer walks, and evidence of financing before you grant exclusivity.
Nothing in the law requires it, but the LOI review is the highest-value hour of legal work in the entire sale. Terms you leave open at signature get negotiated later with no competition and mounting pressure to close, and terms you concede in the LOI are nearly impossible to claw back in the purchase agreement. I review the document, flag what binds you, and mark up the exclusivity and price mechanism before you sign anything.