Letter of intent to buy a business and how to structure one

What a letter of intent does in a business sale

A letter of intent, sometimes called a term sheet or an indication of interest, is a short document in which the buyer states the terms on which it intends to acquire the business. The seller reviews it, negotiates and countersigns it. From that point the parties work toward a definitive purchase agreement, which is the contract that actually transfers ownership.

Most of an LOI is intentionally non-binding. Neither side is obliged to close just because they signed it. What the LOI does is record a shared understanding of the deal, so that due diligence, legal drafting and financing all start from the same page. A good LOI saves weeks. A vague one creates arguments later, usually about price adjustments, what is included and who pays for what.

In online business deals the LOI also marks a change in access. Before it, a buyer usually sees verified headline metrics and whatever the seller shares under an NDA. After it, the seller typically opens deeper access: code, admin panels, customer lists, contracts and accounts at the payment processor and analytics provider.

When to send a letter of intent to buy a business

Send an LOI when you have seen enough to name a price and a structure with some confidence, but before you commission full diligence. In practice that means you have reviewed the verified revenue, churn and traffic, asked your first round of questions, and had at least one call with the founder.

Sending an LOI too early tends to produce a number you will later walk back, which damages trust. Sending it too late risks losing the business to a buyer who moved faster. Sellers with strong metrics often receive several indications of interest, so a clear and complete LOI stands out against a one-line email with a number in it.

The structure of a typical LOI

Most letters of intent for online businesses follow a similar order. The headings below describe what each section usually covers and what to think about when you write it.

Parties and the business being acquired

Name the buyer entity and the seller entity, and describe the business clearly. For an AI product that means the product name, domains, codebase and repositories, customer contracts, subscriptions at the payment processor, trademarks if any, and accounts with the AI model provider and hosting provider. State whether the deal is an asset purchase or a purchase of shares or membership interests. Smaller online deals are often structured as asset purchases, while larger ones may involve buying the company itself. Which is right depends on tax, liabilities and contracts, which is where your advisers come in.

Purchase price and how it is paid

State the headline price and how it will be paid. Common elements include:

• cash at closing, paid through escrow
• a deferred payment or seller note, paid over an agreed period
• an earnout tied to revenue or another metric after closing
• equity in the buyer, more common when a larger company acquires a smaller one

Be specific. "Up to" figures and vague earnouts are a frequent source of disputes. If part of the price depends on future performance, say which metric, how it is measured, over what period and from which source of truth, for example the revenue reported by the payment processor.

Working capital, liabilities and adjustments

State what happens to cash in the business, prepaid annual subscriptions, unpaid invoices and outstanding liabilities. Annual plans deserve particular attention in SaaS: if customers paid upfront for twelve months, the buyer will be serving them for months after closing without receiving that cash. Many buyers ask for an adjustment to the price for deferred revenue. Agree the principle in the LOI, even if the exact number is calculated at closing.

Due diligence scope and timeline

List what the buyer intends to review and how long it expects to take. For an AI SaaS this usually includes revenue and churn at the source, cohort data, gross margin after model and hosting costs, code quality and ownership, dependence on a single model provider, data handling and privacy, customer concentration and any open disputes. A realistic diligence window for a small online business is often a few weeks; larger deals take longer. A named window keeps both sides moving.

Exclusivity

Exclusivity, sometimes called a no-shop clause, is the seller's promise not to negotiate with other buyers for a set period. It is one of the few terms that is usually binding. Buyers want it because diligence costs time and money. Sellers should keep it short and tie it to progress, for example by allowing the period to end early if the buyer does not deliver a draft purchase agreement by an agreed date.

Confidentiality

Most LOIs restate or reference the existing NDA and extend confidentiality to the terms of the LOI itself. This part is usually binding.

Transition and handover

Describe what the seller will do after closing: how many weeks of support, how many hours per week, whether the founder will help migrate accounts, introduce key customers or train the new owner. For AI products, include the transfer of prompts, evaluation sets, fine-tuning data where the seller has rights to it, and model provider accounts or keys. A short, specific transition plan is worth more than a long, vague one.

Conditions to closing

List what must be true before the deal closes: satisfactory diligence, a signed purchase agreement, financing if the buyer needs it, consents from key partners where contracts require them, and no material change in the business between signing and closing. A drop in revenue or a spike in churn during diligence is the classic material change, so it helps to define it.

Escrow and closing mechanics

State that funds will be held by an independent licensed escrow provider and released when the agreed assets and accounts have been transferred and confirmed. Note who pays escrow fees, or that they are split.

Binding and non-binding terms

Close the LOI with a clause that says which sections are binding (usually exclusivity, confidentiality, governing law, and sometimes costs) and that everything else is a statement of intent only. Without this clause, a court may find that more of the document binds the parties than either side intended.

How buyers write a stronger letter of intent

A seller compares offers on more than price. Certainty of closing, speed and a fair handover often matter as much. A strong buyer LOI tends to do the following.

• Show the reasoning behind the price, for example the multiple of revenue or profit you applied and why
• Name the source of funds, so the seller can judge whether you can actually close
• Keep conditions specific and few
• Propose a realistic diligence window and stick to it
• Describe how you will treat customers and, where relevant, staff or contractors

If you used a valuation range to anchor your price, say so. Sellers react better to a lower offer with clear logic than to a number that seems pulled from the air. You can check how revenue and profit multiples are usually applied in our guide on How to value a SaaS company.

How sellers should read an LOI

The headline price is only one line. Before you sign, check how much of it arrives in cash at closing, how much is deferred or contingent, and what has to happen for the contingent part to be paid. A slightly lower price paid fully in cash can be worth more than a higher price with a long earnout you do not control.

• Ask what "satisfactory due diligence" means in practice
• Keep exclusivity short and linked to milestones
• Make sure working capital and deferred revenue adjustments are explained, not left for later
• Check the transition commitment fits your plans after the sale
• Confirm that funds will move through escrow rather than direct transfer

Sellers on Acquisitions receive LOIs in a dedicated inbox on the Featured plan, which keeps offers, versions and messages in one place.

Mistakes that make an LOI fall apart

Many deals that fail after an LOI fail for predictable reasons.

• Price agreed, structure not agreed. The parties discover in drafting that they meant different things by the same number.
• Earnout metrics not defined. Revenue, profit and MRR can each be calculated in several ways.
• Diligence surprises. Churn, refunds or margin turn out worse than the listing suggested. Verified metrics at the source reduce this risk considerably.
• Open-ended exclusivity. The seller is locked in while the buyer goes quiet.
• Handover left vague. The buyer expected months of support, the seller had weeks in mind.

Writing an LOI on Acquisitions

On the Acquirer and Fund plans, the LOI builder walks you through each section described above, fills in the business details from the verified listing and keeps every version in the deal thread. Sellers see a clean document with the price, structure and conditions laid out in the same order every time, which makes offers easier to compare. When the LOI is signed, the SaaS due diligence checklist opens for the deal and the escrow route is ready when you reach closing.