Preparing for a Business Sale with a Letter of Intent

Once a buyer and seller have agreed upon the basic terms of a business sale, the buyer normally sends the seller a letter of intent to purchase a business. Letters of intent (LOIs) serve to

Generally, letters of intent are nonbinding agreements that give the purchaser an opportunity to take a closer look at the revenues, expenses, and operations of a business before drawing up a formal contract. They show a meeting of the minds, in the sense that letters of intent specify the terms of the purchase and what the buyer needs from the seller in order to perform due diligence. Once the seller signs the LOI and the buyer completes due diligence, the agreement moves to the next stage, which involves drawing up and signing a legally binding contract.

Advantages of an LOI

Depending on the situation, an LOI can be advantageous for both the buyer and the seller. These advantages include: