The Letter of Intent Template That Decides Whether You Win or Lose the Deal

Here's the one thing nobody tells you before you buy a business: the deal never gets better after the Letter of Intent. It can only get worse.

That's not pessimism. That's just how the power works. The day before you sign the LOI, you're the buyer everyone's competing for — the seller's been on the market for ~170 days waiting for someone exactly like you, the broker wants a closing, and you can walk at any second with zero cost. The day after you sign, the seller takes the listing down, stops talking to other buyers, and the clock starts on a 30-to-90-day diligence window where every problem you find is a reason to lower your price — and every problem you don't find is a reason for the seller to hold firm. The math runs one direction from the moment of signing, and it runs against you.

So the LOI isn't paperwork. It's the last moment you hold the cards. Most buyers treat it like a handshake and save the "real negotiation" for the purchase agreement. By then your edge is gone. The terms you fight for in the LOI are the terms you actually get. The ones you wave through to "keep things moving" are gone for good.

This is the post where I give you the actual template. But a template you don't understand is just a form you'll fill out wrong, so let me walk you through what each piece does first.

What an LOI actually is

A Letter of Intent is the document that turns "I'm interested" into "here are my terms." It sits between the valuation and the binding purchase agreement. It lays out the price, the structure, the timeline, and the conditions — and it tells the seller: take your business off the market, open your books, and let's go.

It is mostly non-binding. That's the point of it. You're not committing to buy yet — you're committing to try, exclusively, under a defined set of terms, for a defined window. The seller commits to stop shopping the deal. You commit to do the work of diligence. And both of you commit to a number and a structure you'll hold to unless diligence turns up something real.

People search "how to write a letter of intent" expecting a magic paragraph. It's not the paragraph. It's knowing which terms move and which ones don't — and getting the ones that matter locked before you lose the power to ask.

The part that'll bite you: what's binding and what isn't

Here's where people get hurt. They hear "non-binding LOI" and assume the whole thing is non-binding. It isn't.

The price and the deal structure are non-binding — those can move during diligence. But several clauses in a standard LOI are fully, court-enforceably binding the second you sign:

• Confidentiality — you can't go blab about the deal.
• Exclusivity / no-shop — the seller can't take other offers during the window.
• Expense allocation — who pays for what if it falls apart.
• The deposit — your earnest money is real money with real terms.

And honestly, the line between "binding" and "non-binding" is blurrier than the heading on the page makes it look. Courts have enforced LOIs that said "non-binding" as actual contracts when the language was sloppy and the conduct looked like a deal. The clearest treatment of this I've found is the Morgan & Westfield LOI chapter — read it before you sign anything. The takeaway: write what you mean. If a clause is meant to be non-binding, say so in that clause, in plain words. Don't rely on the title of the document to save you.

The clauses worth fighting for — in the LOI, not later

Since your position only goes downhill from signing, you fight for the protective terms now. Here are the ones that matter.

Price and structure

Obvious, but say it precisely. Not "around $400,000." A number, and the shape of that number — because the price is a stack, not a check. Cash at close (commonly 50-90% of the price), a possible seller note, the escrow holdback, the working-capital adjustment. Each one is a lever. A seller who won't move on price will often move on how much of it is cash on day one versus a note you pay over time. (Quick note if you're going SBA: earnouts are banned on SBA 7(a) deals, so don't structure around one.)

No-shop / exclusivity window — 30 to 60 days

This is the seller taking the business off the market for you. Standard is 30-60 days, often 30-45. Buyers commonly push for 45-90 to give themselves breathing room on diligence and financing. You want enough runway to actually finish your work without re-racing other buyers. Too short and you're rushed into a bad yes; too long and a motivated seller won't grant it.

The working-capital peg and true-up

This is the one that quietly costs people real money, so pay attention. You're buying a business that needs a normal amount of working capital to run — receivables, inventory, the stuff that keeps the lights on between a sale and getting paid. If the seller drains it the week before close, you walk in and have to refill the tank out of your own pocket.

So you set a peg: a normalized 6-to-12-month average of (AR + inventory + prepaids − AP − accruals), excluding cash and funded debt. At close you compare actual working capital to the peg and true it up dollar-for-dollar — usually reconciled 60-120 days post-close once the real numbers settle. Get this defined in the LOI. "We'll figure out working capital later" is how you eat a five-figure surprise at the closing table.

Earnest money — in escrow, never with the seller

You'll put up a deposit to show you're serious. It goes into escrow — a neutral third party — never into the seller's hands. And it's returnable if your contingencies (financing, diligence) aren't met. A seller who insists on holding your deposit directly is telling you something; believe them.

The holdback — about 10%, held 12 to 18 months

After close, a slice of the price sits in escrow as your insurance policy. If something the seller swore was true turns out not to be — an undisclosed liability, a customer who was already walking — you have a pool to make yourself whole instead of chasing the seller in court. Typical is around 10% of the price (range 5-15%), held 12-18 months for indemnification. Get it in the LOI.

Financing and due-diligence contingencies

These are your exits. The financing contingency says: if my lender says no, I walk and get my deposit back. The diligence contingency says: if I open the books and the business isn't what you told me it was, I walk. Diligence windows commonly run 30-90 days. Without these, your earnest money is a hostage. With them, it's a deposit.

Asset sale vs. stock sale, in plain English

You'll hit this in every LOI, and it sounds like lawyer noise, but it's actually simple and it matters.

In a stock sale, you buy the company itself — the whole entity, every asset and every liability, known and unknown. You inherit the lawsuit nobody mentioned.

In an asset sale, you buy the stuff — the equipment, the customer list, the name, the inventory — and you pick which liabilities you're willing to assume. The skeletons mostly stay in the seller's closet.

Buyers usually want an asset deal: you get a stepped-up tax basis on what you bought, and you choose which liabilities come along. Sellers usually want a stock deal, because their proceeds get taxed as capital gains, which is friendlier to them. Most small-business deals end up as asset sales, and the asset allocation gets reported to the IRS on Form 8594. You don't have to settle the whole thing in the LOI, but state which structure you're proposing — it's a term, not a detail.

Turning a valuation into an actual offer number

So you've got a valuation. Maybe the business is priced at a multiple in the normal range — IBBA's Q3 2025 data puts the median at 2.0x SDE under $500K, 2.8x from $500K-1M, and 3.3x from $1M-2M. Now you have to turn that into a number you actually write down. Two things to know.

First, asking prices aren't selling prices. Over the long run, small businesses sell for about 85-86% of asking — closer to 90% once you're over $1M. (BizBuySell's 2025 snapshot ran hotter, around 94% of asking, but that's a single self-reported year, not the long-run average — don't anchor on the high number.) The asking price is the start of a conversation, not the price.

Second — and this is where the actual money is — scrub the add-backs. Sellers inflate earnings by "adding back" expenses they claim are personal or one-time, to make the SDE look bigger and justify a higher price. Some add-backs are legit (the owner's above-market salary). A lot are wishful thinking (the "business" truck the family drives). Buyers commonly disallow 20-40% of the seller's add-backs before anchoring on a price. Every dollar of fake add-back you let stand, you pay for at the multiple. On a 2.8x business, a $20,000 phantom add-back costs you $56,000. That's the whole ballgame, right there.

Walker Deibel's *Buy Then Build* is the book if you want to go deeper on the buy-side mindset — it's the canonical one for a reason.

Where this fits

You find the deal, you source it, you size it up — that's the front of the funnel. We built DealStratum for that part: Waterfall is a deduped, on-market feed of businesses for sale you filter to your Buy Box, and Owner Sourcing plus Direct Mail go find the off-market owners who haven't listed yet. Once you've got a real target and a number, the LOI is your next move.

But let me be honest about the line here: DealStratum helps you find and reach the deal. It does not value the business for you, lend you the money, do your diligence, or replace your advisors. The template below is a starting point to organize your thinking and your first conversation — the real LOI gets reviewed by an M&A attorney before it leaves your hands. A 2-hour attorney review on the front end is cheap insurance against a clause that costs you five figures on the back end.

If you want the full sequence, the pillar guide walks the whole path, and seller financing is worth reading before you negotiate the note in the structure section.

The Letter of Intent Template

Here it is — a fill-in-the-blank LOI to purchase a business. Copy it, fill the brackets, and hand the draft to your attorney. This is the "letter of intent to purchase a business" version, organized exactly around the clauses above.

LETTER OF INTENT TO PURCHASE A BUSINESS

Date: [DATE]

From (Buyer): [BUYER LEGAL NAME / ENTITY]
To (Seller):  [SELLER LEGAL NAME / ENTITY]
Re:           Proposed acquisition of [BUSINESS NAME] ("the Business")

This Letter of Intent ("LOI") outlines the proposed terms under which
[BUYER] ("Buyer") proposes to acquire [BUSINESS NAME] ("Seller").
Except for the sections expressly marked BINDING below, this LOI is
NON-BINDING and is intended solely as a basis for continued negotiation.

------------------------------------------------------------
1. TRANSACTION STRUCTURE   [Non-Binding]
------------------------------------------------------------
Buyer proposes to acquire the Business as a(n):
   [ ] Asset Sale    [ ] Stock Sale
(For an asset sale, the parties will allocate the purchase price and
report it on IRS Form 8594.)

------------------------------------------------------------
2. PURCHASE PRICE & CONSIDERATION   [Non-Binding]
------------------------------------------------------------
Total Purchase Price:            $[TOTAL PRICE]
Based on:                        [MULTIPLE]x [SDE / EBITDA] of $[EARNINGS]

Consideration stack:
   Cash at close:                $[AMOUNT]  ([__]% of price)
   Seller note:                  $[AMOUNT]  at [__]% over [__] months
   Escrow holdback:              $[AMOUNT]  (see Section 6)
   Working-capital adjustment:   per Section 4 (dollar-for-dollar)

------------------------------------------------------------
3. EXCLUSIVITY / NO-SHOP   [BINDING]
------------------------------------------------------------
From the date this LOI is signed, Seller agrees not to solicit, entertain,
or negotiate any competing offer for a period of [30-60] days
("Exclusivity Period"). Seller will take the Business off the market for
the duration of this period.

------------------------------------------------------------
4. NET WORKING CAPITAL PEG & TRUE-UP   [Non-Binding]
------------------------------------------------------------
The sale assumes delivery of a normalized level of net working capital
("the Peg"), defined as a [6-12]-month average of:
   (Accounts Receivable + Inventory + Prepaids)
   − (Accounts Payable + Accrued Liabilities),
   excluding cash and funded debt.

Peg target: $[AMOUNT]

At close, actual net working capital will be compared to the Peg and
trued up DOLLAR-FOR-DOLLAR, reconciled within [60-120] days post-close.

------------------------------------------------------------
5. EARNEST MONEY DEPOSIT   [BINDING]
------------------------------------------------------------
Buyer will deposit $[AMOUNT] into escrow with a neutral third-party
agent within [__] business days of signing. The deposit is REFUNDABLE
to Buyer if the financing or due-diligence contingencies (Section 7)
are not satisfied. The deposit will not be held directly by Seller.

------------------------------------------------------------
6. ESCROW HOLDBACK / INDEMNIFICATION   [Non-Binding]
------------------------------------------------------------
At close, $[AMOUNT] (approximately [5-15]% of the Purchase Price) will
be held in escrow for [12-18] months to secure Seller's representations,
warranties, and indemnification obligations.

------------------------------------------------------------
7. CONTINGENCIES   [Non-Binding]
------------------------------------------------------------
This proposed transaction is contingent on:
   (a) Due Diligence: Buyer's satisfactory review of financial, legal,
       and operational records within [30-90] days ("Diligence Period").
   (b) Financing: Buyer obtaining acquisition financing on acceptable
       terms by [DATE].
   (c) Lease/contract assignment, licensing, and other: [SPECIFY]

------------------------------------------------------------
8. CONFIDENTIALITY   [BINDING]
------------------------------------------------------------
Both parties will keep the existence and terms of this LOI and all
information exchanged strictly confidential, except as required by law
or to advisors bound by the same obligation.

------------------------------------------------------------
9. EXPENSES   [BINDING]
------------------------------------------------------------
Each party bears its own legal, accounting, and advisory expenses,
whether or not the transaction closes.

------------------------------------------------------------
10. CLOSING TARGET   [Non-Binding]
------------------------------------------------------------
The parties will work in good faith toward a definitive Purchase
Agreement and a target closing date of [DATE].

------------------------------------------------------------
11. NON-BINDING EFFECT
------------------------------------------------------------
Except for Sections 3, 5, 8, and 9 (which are expressly BINDING), this
LOI is non-binding, creates no obligation to complete the transaction,
and is intended only as a framework for negotiating a definitive
agreement.

Buyer: ______________________________   Date: ____________
       [BUYER NAME]

Seller: _____________________________   Date: ____________
       [SELLER NAME]

A few notes on using it. The bracketed ranges (like the 30-60 day exclusivity) are where you make a real choice, not copy a range — pick your number based on how much diligence runway you actually need. The BINDING / Non-Binding tags aren't decoration; they're the most important words in the document, and Section 11 ties them together so there's no ambiguity a court could read against you. And again — fill this out to organize your own thinking and your first real conversation with the seller, then hand it to an M&A attorney before a signature goes anywhere near it.

The buyers who win deals aren't the ones who pay the most. They're the ones who understood that the LOI was the high-water mark of their power and used it — instead of signing fast to feel productive and spending the next 90 days watching every term they didn't fight for slip away. I'm just trying to make sure you're on the right side of that.

Nothing here is legal or financial advice. An LOI is a real document with real binding terms — have an M&A attorney and a CPA review yours before you sign anything.