Writing an Effective LOI
A good Letter of Intent is clear, concise, and focused on the key deal terms, specific enough to align both parties, but flexible enough to leave detail for the definitive agreement. Whether you're a buyer drafting one or a seller reviewing it, the principles are the same: cover what matters, be explicit about what's binding, and don't try to make the LOI do the job of the purchase agreement. Here's how.
Whether you're buying or selling, get a broker's guidance on structuring an LOI that leads to a closed deal.
Cover the Key Terms
Start by including the essentials, everything an LOI should contain: price and structure, what's included, contingencies (due diligence, financing), exclusivity, confidentiality, transition, and timeline. A well-organized LOI walks through these in a logical order so both sides can see the whole deal at a glance. Missing a key term is a common mistake that causes problems later.
Balance Specificity and Flexibility
The art of a good LOI is balance. Be specific enough on the important terms (the price, the structure, the exclusivity period) that there's genuine agreement, but leave room on details that will be worked out in diligence and the definitive agreement. Over-specifying can create conflict over minor points too early; under-specifying leaves the big issues unresolved. Focus your precision on what matters most.
Be Explicit About Binding Terms
State clearly which provisions are binding and which are not. A standard approach: a statement that the LOI is non-binding except for specified sections, typically exclusivity, confidentiality, and expense provisions. Ambiguity here is dangerous, unclear binding language has led to disputes and even litigation. This is a key reason to involve an attorney.
Keep the Tone Constructive
An LOI sets the tone for the whole deal, so write it to build agreement, not to win every point. Especially in a business sale, buyer and seller often work together afterward (transition, seller financing), so a collaborative, fair-minded LOI starts the relationship well. Aggressive or one-sided terms can sour a deal before it starts. See LOI negotiation strategies.
Work With Your Advisors
Don't write or sign an LOI in a vacuum. A broker helps structure and negotiate the terms, and an attorney should review it, especially the binding provisions, before you sign. While an LOI is mostly non-binding, it shapes the entire deal and carries some binding obligations, so professional input protects you. See what an LOI is.
Note: This article is general educational information, not legal advice. An LOI and purchase agreement are legal documents — have a qualified attorney review yours.
Frequently Asked Questions
How do you write a Letter of Intent to buy a business?
Write it clear and concise, covering the key terms, price, structure, what's included, due diligence and financing contingencies, exclusivity, confidentiality, transition, and timeline. Balance specificity on important terms with flexibility on details, state explicitly which provisions are binding, keep the tone constructive, and have an attorney review it before signing.
How long should a Letter of Intent be?
Long enough to cover the key deal terms clearly, but focused, typically a few pages. The LOI should capture the essentials both parties need to agree on without becoming as detailed as the definitive purchase agreement. Over-long, over-detailed LOIs create conflict too early; the fine detail belongs in the purchase agreement.
Who writes the Letter of Intent, the buyer or seller?
The buyer typically drafts the LOI, presenting their proposed terms, and the seller negotiates from there. In a broker-managed sale, the broker helps structure and negotiate it, and both sides' attorneys review it before signing.
Should an attorney review my LOI?
Yes. Although an LOI is mostly non-binding, it shapes the entire deal and includes some binding provisions like exclusivity and confidentiality. An attorney should review it, especially the binding terms and any ambiguous language, before you sign, to protect your interests and prevent disputes later.
Drafting an LOI?
Martin Navarro helps buyers and sellers write and negotiate effective LOIs. Let's talk, confidentially and with no obligation.
Request a Confidential Consultation Call or text: 818-633-3254 · 365navarro.martin@gmail.com