The letter arrives by email, two or three pages, and it is friendly. There is a number in it, a good one. Near the top it says “non-binding,” which makes it feel safe, like a draft of a draft. It reads as a milestone, the moment things become real, and the natural instinct is to sign it quickly before the buyer changes his mind.
That signature is usually the moment the balance of power in the deal quietly moves to the other side of the table. Not because the document is a trap, but because most first-time sellers do not understand what they are actually agreeing to when they sign one.
What the LOI Actually Is
A Letter of Intent, sometimes called a term sheet or heads of terms, sets out the main shape of the proposed deal before anyone writes the real contract. The price, the rough structure, the timeline, and a few rules for how the two sides will behave while they work toward closing. It is the skeleton everybody agrees on before spending serious money on lawyers and due diligence.
Sellers tend to treat it as a handshake on paper. Buyers treat it as the cheapest place to lock in their advantages, while you are still excited and grateful and not yet paying close attention. Same document, two very different readings of it.
The Word “Non-Binding” Is Doing a Lot of Work
Most of the LOI really is non-binding. The price, the structure, the lovely number, all of it is “subject to” things that have not happened yet, and none of it obliges anyone to complete the deal. This is true, and it is why people relax.
But two parts almost always do bind you, and one of them matters enormously. The first is confidentiality, which is fine and normal. The second is exclusivity, often called the no-shop clause, and this is the one to read slowly. By signing it you agree that for a period, usually sixty to ninety days, you will not talk to any other buyer. You take yourself off the market.
Think about what that does. Your strongest card as a seller is competition, the simple fact that someone else might want the company and might pay more. The day you grant exclusivity, you put that card face down and you cannot pick it up again until the period ends. The buyer knows this perfectly. From that moment he can slow down, dig in, and renegotiate, because he is aware you have nowhere else to go. You handed him time and certainty, and you got a non-binding number in return.
Why the Price Becomes a Ceiling
The figure in the LOI feels like a floor. The starting point, the worst case, the number that can only climb from here as the buyer falls in love with the business.
It is almost always the opposite. The LOI price is the ceiling. Buyers very rarely raise it after this point. What they do instead is find reasons during due diligence to come down from it, a client that looks shakier than expected, a margin that needs “adjusting,” some risk that justifies a lower figure. So read the headline number as the best you are likely to get, the most optimistic version of the deal, with everything after the signature pointing gently downward. If the LOI price is already barely acceptable to you, the final price probably will not be.
The Vague Parts Are the Important Parts
Here is the thing that catches people. The sentences in an LOI that look like harmless filler are often where the whole deal lives. “Subject to due diligence.” “Final structure to be agreed.” “Customary terms and conditions.” They read like polite legal furniture.
They are not furniture. “Structure to be agreed” is the difference between cash in your account and an earnout you might never fully collect. “To be agreed” means agreed later, and later is exactly when you have already given up exclusivity and lost your leverage. Whatever you leave blank in the LOI, you will be negotiating from a weaker position once you are locked in.
So the move is to pull as much as you can out of the vague language and into the letter itself, while you still have, at least in theory, other buyers in the room. The structure, how the price is paid, what can be adjusted at closing. Get the important shapes settled before you sign away your freedom to walk, not after.
Before You Sign
Do not sign the first version that lands in your inbox. The LOI is cheap to negotiate and very expensive to regret, which is the reverse of how most owners treat it.
Push back on the exclusivity period, shorten it, attach conditions to it. Settle the price mechanism and the broad structure as far as you can before granting it. And get someone who has done this many times to read the letter before you commit, because the cost of that advice is nothing next to what a loose LOI gives away. This is also the stage where you should already know your own limits, the terms below which you would rather walk, which is a whole subject on its own (we wrote it up in When to Walk Away From a Deal).
A Letter of Intent is not the celebration it feels like. It is the first real negotiation, dressed up as a formality. Read it that way and you keep your power a little longer.
