How to Structure a Letter of Intent (LOI)

Written By Morgan Tate

How to Structure a Letter of Intent (LOI) in M&A

A Letter of Intent (LOI) is the starting point of every business acquisition—and one of the most important documents in the M&A process. Done right, an LOI builds trust and sets the tone for a smooth transaction. Done poorly, it can derail a deal before it even begins.

In this video, we’ll walk through how to structure an LOI that buyers can confidently submit and sellers are more likely to accept.

What Is an LOI?

An LOI is a non-binding agreement that outlines the key commercial terms of a potential business sale. Think of it as a handshake—documented in writing—before diving into due diligence or legal drafting.

Typical terms include:

  • Purchase price

  • Payment structure (e.g., all cash, seller financing, earn-outs)

  • Deal timeline and closing date

  • Transition and training plan

  • Key conditions (e.g., lease transfer, staff interviews)

  • Non-competes and confidentiality

  • Working capital and inventory details

While most of the LOI is non-binding, some elements—like confidentiality, exclusivity, and normal course of business obligations—are usually enforceable.

Structuring an LOI That Gets Accepted

Before getting your lawyer involved, aim to agree on the commercial terms first. Too often, buyers spend thousands drafting legal documents only to have the offer rejected over price or terms that could’ve been resolved via email or call.

Here’s what to include:

1. Purchase Price Breakdown

  • Is it all cash? Will there be a seller note? An earn-out? Be clear.

2. Timeline to Close

  • Include a realistic closing date and note if external financing is required.

3. Deal Conditions

  • Examples: lease transfers, verifying financials, interviewing key team members.

4. Training & Transition Plan

  • Clarify how much post-sale support you expect. A phased approach is common—full-time help for a few weeks, followed by paid consulting as needed.

5. Inventory, Contracts & Working Capital

  • Define what's included in the purchase price, and whether working capital or inventory will be negotiated.

Tone Matters: Use the LOI as a Starting Point

An LOI should be a conversation starter, not a lowball offer. If your terms are too aggressive, a seller may ignore it entirely. Use this document to open dialogue and pull the right levers during negotiation.

Working with an M&A advisor—like Breakwater—can help you fine-tune your LOI and improve your chances of acceptance.

Need help? We’re happy to provide a customizable LOI template.

 
Morgan Tate
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