The LOI is a mostly non-binding outline of the deal you intend to do. It matters far more than its non-binding status suggests, because everything after it is a renegotiation from these terms rather than a fresh start.
What it should cover
- Price, and the structure: cash at close, seller financing, any earnout.
- What is included — assets, inventory, contracts — and what is not.
- Asset purchase versus share purchase, which has real tax and liability consequences.
- A diligence period with a defined length and access to records.
- Exclusivity: they stop talking to other buyers while you spend money on diligence.
- The seller’s transition commitment after closing.
Exclusivity is the clause worth fighting for. Diligence costs real money, and doing it while the seller entertains other offers is a bad trade. Sixty to ninety days is a common ask at this size.
Keep the tone collaborative. At the small end you are usually buying from a person who built this, often over decades, and who will be answering your questions for months. An aggressive LOI can end a deal that price never would have.
Try it
Draft your LOI terms for a target you are considering — price, structure, diligence window, exclusivity, transition. Having them written turns a nervous conversation into a straightforward one.