The Letter of Intent marks the moment a deal gets real. A buyer has reviewed your business, run their initial numbers, and is ready to commit to a framework for acquisition. The LOI outlines the proposed price, structure, and key terms — and it triggers an exclusivity period during which you can't talk to other buyers.
Most sellers treat the LOI as a formality on the way to the "real" deal. That's a mistake. The LOI shapes everything that follows.
What the LOI Covers
A typical LOI for a plumbing business sale will address:
| LOI Component | What It Establishes |
|---|---|
| Purchase price | Total consideration, often broken into cash at close + earnout + seller note |
| Deal structure | Asset sale vs. stock sale; entity to be acquired |
| Earnout terms | Metric, period, targets, payment schedule (if any earnout) |
| Working capital peg | Expected working capital at close; adjustment mechanism |
| Exclusivity period | Duration during which seller cannot solicit other offers |
| Due diligence period | Timeline and scope of buyer's review |
| Conditions to close | What must happen for the deal to close (financing, approvals) |
| Key assumptions | What the price is based on (e.g., "$1.2M verified EBITDA") |
| Transition requirements | How long seller stays post-close and in what capacity |
| Non-compete outline | Rough scope of post-close restrictions on seller |
| Confidentiality | Binding — protects both parties during negotiations |
What's Binding and What Isn't
The LOI is generally non-binding on the deal terms — meaning either party can walk away or renegotiate during due diligence and documentation. However, two provisions are typically binding: the exclusivity clause (you can't shop the deal to other buyers during the agreed period) and the confidentiality clause.
This is why the LOI matters so much. You're giving up your negotiating leverage (other buyers) in exchange for an offer that isn't yet final. Once you're exclusive, your position weakens — the buyer knows you're committed to the process and that backing out is expensive.
Exclusivity: The Most Important Thing to Negotiate
Buyers routinely ask for 60–90 days of exclusivity. That's a long time to be locked out of conversations with other potential buyers. Push back:
Request 30–45 days maximum for the initial exclusivity period with a defined extension mechanism (e.g., can extend 15 days if both parties agree progress is being made). Require that exclusivity terminates if the buyer significantly changes deal terms ("retrades") after due diligence. And make sure the exclusivity provision is mutual in spirit — if the buyer walks, there should be no lingering confidentiality restrictions that prevent you from moving forward with others.
The Retrade Problem
A retrade happens when a buyer signs an LOI at $4M, runs due diligence for 60 days, and then comes back with a revised offer of $3.2M. They've found issues — real or manufactured — and are using the exclusivity period as leverage to reprice.
Protecting against retrades: run a competitive process so you have backup bidders; build retrade language into the LOI (if buyer reduces price by more than X% without material new information, exclusivity terminates); have your own quality of earnings report so you know what they'll find before they find it.
Key Terms to Negotiate Before Signing the LOI
- Shorten exclusivity — push for 30–45 days max, not 60–90
- Clarify earnout metrics precisely — vague earnout language in LOI becomes a battle during definitive agreement
- Establish working capital peg methodology — agree on calculation method now, not in the purchase agreement
- Confirm financing source — is buyer paying cash or is there a financing contingency? Financing contingencies add risk.
- Scope the due diligence process — what specifically will they review? What's the timeline?
- Anti-retrade language — termination of exclusivity if price reduced without material new information
Also in the Lightning Path Guide Series
Own a HVAC business? See our companion guide: Letter of Intent for an HVAC Business Sale
DISCLAIMER: The information on this page is provided for general informational and educational purposes only. It does not constitute — and should not be construed as — financial advice, investment advice, legal advice, tax advice, or any other form of professional advice. Nothing on this site creates a professional advisory relationship between you and Lightning Path Partners. Business valuations, transaction structures, and market conditions discussed herein are general in nature and may not apply to your specific situation. Always consult a qualified financial advisor, M&A attorney, business broker, or CPA before making any business or financial decisions. Full Terms of Use →
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