Letter of Intent Basics

Making the decision to sell your business is difficult, but that is just the beginning. You want to do everything you can to obtain the maximum amount that you can for it. Thus, it is imperative that you make the most of every step of the sale process, including the term sheet or letter of intent (LOI).

• Include crucial points . The seller typically has the most leverage at the LOI stage, so take advantage of this negotiation power. Once you have signed the LOI, the buyer knows that you have committed to the sale. Many sellers don’t take the LOI seriously because it is non-binding, but you miss out on a great opportunity to negotiate some of the most critical deal points. Also, if you fail to include the terms in the LOI, it is often difficult to get them included later. To ensure that you get the final deal that you want, use the LOI to your advantage.
• Binding terms . The LOI should clearly set forth what terms are binding and which are not. Typically, confidentiality clauses and other similar agreements should be binding to protect your entity if the sale should not close successfully.
• Set the right impression . The term sheet is usually the first negotiations between the buyer and the seller. The seller must set the right tone for the transaction by taking the LOI negotiations seriously, while also not appearing desperate. Even if most of the terms are not binding, you want the buyer to see you as reasonable and professional.