What should I ask before signing a letter of intent?

Before you sign a letter of intent, ask about the price structure, the earnout terms, the exclusivity period, what’s included in the sale, and whether the buyer has financing lined up. The LOI is the document that defines the deal framework, and the terms set here are very hard to change once you’ve signed and handed the buyer exclusivity.

Understand what an LOI is and what it includes

Key Takeaways

• Signing an LOI starts an exclusivity period of 60 to 90 days during which you cannot talk to other buyers
• Earnouts are high-risk: only 21 cents on the dollar is paid out on average, according to SRS Acquiom (2025)
• Vague LOI terms almost always get interpreted in the buyer’s favor later
• Ask the buyer about financing, transition expectations, and their track record with prior sellers before you sign
• Your broker negotiates the LOI; your attorney reviews it for binding terms - both matter at this stage

Why the LOI deserves more attention than most sellers give it

Signing the LOI feels like progress. After months of conversations, meetings, and information requests, there’s a number on paper and both sides are ready to move forward. That momentum is real and it’s also exactly when you need to slow down.

The moment you sign, you’re in exclusivity. You cannot talk to other buyers. You cannot take backup offers. You cannot restart the process without losing all the time the exclusivity period consumed. According to the IBBA’s Q1 2025 Market Pulse report, 90% of recent sellers were first-timers who lacked a formal process. Most of them did not know what to push back on before signing.

The LOI also anchors everything that follows. If a term is vague in the LOI, the purchase agreement will interpret it in the buyer’s favor. That’s not speculation; it’s the pattern. Nail down the specifics now, while you still have other buyers in the market and leverage to use.

What deal terms must be clearly defined before you sign

These are the specific items to get nailed down in the LOI itself, not left for the purchase agreement.

Price and payment structure. The headline number is not the full story. What matters is how much is cash at closing, how much is an earnout tied to future performance, and how much is seller financing. A $2 million offer where $700,000 is an earnout is a very different deal from a $2 million all-cash close. Get those numbers broken out clearly.

Earnout terms in detail. If any portion of the price is contingent on future performance, the LOI must specify the metric (gross revenue or EBITDA), the measurement period, and the payment schedule. Vague earnout language is where the most money gets lost. SRS Acquiom’s 2025 data shows earnouts represent a median of 31% of the closing payment, but sellers collect only about 21 cents on the dollar on average. The gap between what’s promised and what’s paid usually starts with a poorly defined LOI.

Understand how earnouts are structured and what can go wrong

Working capital requirements. Buyers often define the expected level of working capital they want left in the business at closing. If the actual balance at close is lower, they deduct the difference from your payout. This is one of the most common sources of post-LOI disputes in small business sales. Pin down the target working capital figure and the calculation methodology in the LOI itself.

The exclusivity period length and exit terms. Exclusivity runs 60 to 90 days in most small and mid-market deals. Push for the shortest period your broker thinks the buyer will accept. Also define what happens if the buyer goes silent, misses milestones, or walks away without a substantive reason. You want a clear path back to market if the deal stalls.

What is included in the sale. Equipment, vehicles, accounts receivable, inventory, real estate, customer contracts - specify what transfers and what does not. Leaving this to “what the parties mutually agree” is an invitation for a dispute.

Transition period and your role. How long are you expected to stay involved, in what capacity, and at what compensation? A buyer who expects 18 months of your time at a reduced salary has a meaningfully different offer than a buyer who wants a 90-day handoff. Get the terms in writing now.

Representations and indemnity. Some LOIs begin outlining the representations and warranties the buyer will require and how long your indemnification exposure lasts after closing. If this language appears in the LOI, have your attorney review it before you sign.

Financing contingency. Is the buyer’s offer contingent on securing financing? If so, the offer is conditional, not firm. You want to know this upfront, and you want a deadline by which the buyer must confirm financing or the LOI expires.

Questions to ask the buyer before you sign

The LOI review is not just about the document. It’s also the right moment to ask the buyer direct questions while you still have alternatives.

What do you plan to change in the first 90 days? The answer tells you a great deal about how they’ll run the business and whether your employees and customers will be in good hands. A buyer who says “nothing” may not be serious. A buyer who has a thoughtful transition plan is more credible.

Can you show proof of financing? A buyer without committed capital is a buyer who may not close. Ask to see a bank commitment letter or proof of funds. If they push back, that’s information worth having before you sign into exclusivity.

What does the transition look like from your side? You’ll find out quickly whether your transition expectations and theirs are aligned. Surprises about transition duration and role are much easier to resolve before signing than after.

Have you done deals like this before, and can I speak with a prior seller? A buyer with a track record of completed acquisitions and sellers who speak well of the experience is a very different situation from a first-time buyer who has never closed a deal. Reference checks take an hour and can prevent months of wasted time.

Learn how to check out a buyer before you commit

How to spot a buyer who plans to renegotiate

Re-trades happen when a buyer uses findings from due diligence to come back with a lower price or worse terms after the LOI is signed. They’re more common when the LOI terms are vague, because that vagueness gives the buyer room to reinterpret. The early warning signs are visible before you sign.

A buyer who resists defining the earnout metric is leaving room to measure it differently later. A buyer who can’t explain their working capital expectations is planning to define them at closing in their favor. A buyer who lowballs every question about the preliminary financials, dismisses your add-backs without documentation, or makes aggressive data requests without reciprocal flexibility is telling you something about how they’ll behave during due diligence.

None of these signals are disqualifying on their own. But patterns matter. If multiple items in the LOI are left intentionally vague after you’ve asked for specifics, the buyer may be counting on the exclusivity period and your sunk cost to bring you back to the table on worse terms.

Why your broker and attorney both matter at this stage

Most sellers know they’ll need an attorney to review the purchase agreement. Fewer realize the attorney needs to see the LOI first.

The LOI sets the exclusivity period, price structure, earnout framework, and working capital expectations. A missing clause, an undefined term, or an excessively long no-shop provision can cost far more than attorney fees to fix after the fact. In some cases, they cannot be fixed at all.

Your broker’s role at this stage is to negotiate the LOI terms on your behalf. A broker who has handled multiple transactions knows what’s standard, what’s a concession the buyer doesn’t need, and where you have room to push back. Their fee is earned here as much as anywhere else in the process.

Understand what due diligence looks like once the LOI is signed

Common questions owners ask

How long is the exclusivity period in a typical LOI?

Most LOI exclusivity periods run 60 to 90 days for small and mid-market deals. During that window you cannot take other offers, talk to other buyers, or restart the sale process. If the deal collapses on day 88, you've lost three months and have to start over with zero momentum. Push for the shortest exclusivity period your broker thinks the buyer will accept, and make sure there's a clear exit clause if the buyer stops communicating.

What is a working capital adjustment and why does it matter?

Working capital is the cash and near-cash resources (accounts receivable, inventory) left in the business at closing. Buyers often define what level of working capital they expect to receive, and if the actual amount is lower at close, they deduct the difference from your payout. This is one of the most common sources of post-LOI disputes in small business sales. Get the working capital target defined precisely in the LOI, not left to the purchase agreement.

Do I need an attorney before I sign an LOI?

Yes. Most sellers assume the attorney becomes important once the purchase agreement is drafted. That's too late. The LOI sets the price structure, earnout terms, exclusivity period, and working capital expectations. A poorly defined term in the LOI is very hard to fix after you've signed and given the buyer exclusivity. Attorney review of the LOI costs a fraction of what a bad term can cost you at closing.

What early signs suggest a buyer might renegotiate after due diligence?

Vague LOI language is the clearest early warning. A buyer who resists defining the earnout metric, the working capital target, or the financing contingency is leaving room to revisit those terms later, on their terms. Other signs: the buyer lowballs every finding during preliminary conversations, makes aggressive data requests without matching flexibility, or can't show proof of financing when asked. Reference checks with prior sellers they've worked with will tell you more than any document.