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The letter of intent
Read a finished one first. Then decide what yours would say, and take the questions, not a draft, to your attorney.
Signed-in buyers can work the worksheet and the checklist for one business from its listing, and leave with their list for their attorney.
An indication of interest, annotated
An indication of interest is a short, non-binding letter. It tells the seller whether the two sides are in the same neighborhood before either spends much time. This one is for a fictional wholesale bakery from the buyer track's recurring cast. Every figure is illustrative arithmetic.
Opening
Dear Ms. Alvarez,
Thank you for the time on Tuesday and for the information memorandum. I have read it carefully and I would like to indicate my interest in acquiring Maple Street Wholesale Bakery.
The range
Based on the information provided, I would expect to value the business in the range of $1,100,000 to $1,300,000, subject to the diligence described below.
Structure, in outline
I would expect to structure the purchase as an asset purchase, financed with my own funds, an SBA 7(a) loan, and, if you are open to it, a seller note for a portion of the price. I am prequalified with First Harbor Bank for a purchase of this size.
The people and the handoff
I intend to keep the current staff and the Maple Street name, and I would ask you to stay for a transition of around ninety days after closing.
What comes next
If this range is workable, I would like to move to a letter of intent within two weeks. I would expect diligence to take about forty-five days from there, and I would ask for a period of exclusivity during that time.
The non-binding line
This letter is an expression of interest only. It does not create any obligation on either of us, and neither of us is bound to anything unless and until a definitive agreement is signed.
Closing
I look forward to talking further.
Sincerely, Daniel Okafor
A sample for a fictional deal, with illustrative figures. Not a template, and not legal advice. Your attorney drafts yours.
A letter of intent, annotated
A letter of intent is the offer document. It sets the price and the main terms and starts diligence. Most of it does not bind either side; some parts do. This sample is for the same fictional bakery as the indication of interest, and every figure is illustrative arithmetic. It is here to be read, not copied. Your attorney drafts yours.
1. The parties and the business
This letter sets out the terms on which Daniel Okafor, or an entity he forms for the purpose ("Buyer"), proposes to acquire substantially all of the assets of Maple Street Wholesale Bakery, Inc. ("Seller"), a wholesale bakery operating at 412 Maple Street.
2. Purchase price
The purchase price will be $1,200,000, allocated among the purchased assets as the parties agree before closing, and paid as follows: $120,000 from Buyer's own funds at closing; $900,000 from the proceeds of an SBA 7(a) loan; and $180,000 by a promissory note from Buyer to Seller on the terms in section 4.
3. Working capital
The purchase price assumes the business is delivered with normal working capital of $95,000, measured as current assets less current liabilities as of the closing date. The price will be adjusted dollar for dollar for any difference, settled within sixty days after closing.
4. Seller note
The note will bear interest at 7 percent per year, amortize over five years, and be secured by a subordinate lien on the purchased assets. Buyer acknowledges that the lender may require the note to be placed on standby, with no payments to Seller for a period the lender sets, as a condition of the loan.
5. Deposit
Within five business days of signing, Buyer will deposit $25,000 with an escrow agent. The deposit is refundable if Buyer terminates during the diligence period; after the diligence period ends, it is credited to the price at closing or forfeited to Seller if Buyer fails to close for a reason other than a failed condition in section 8.
6. Exclusivity
For sixty days from signing, Seller will not solicit, negotiate or accept any other offer for the business or its assets, and will tell Buyer promptly of any approach.
7. Diligence
Buyer will have forty-five days from signing to complete its review of the business, during which Seller will give Buyer and its advisors reasonable access to the books, records, contracts, premises and, at agreed times, key employees and customers.
8. Conditions to closing
Closing is conditioned on: Buyer obtaining the loan in section 2 on terms reasonably acceptable to Buyer; Buyer completing diligence to its reasonable satisfaction; assignment of the premises lease to Buyer on its current terms or a new lease acceptable to Buyer; transfer or reissue of the licenses and permits needed to operate; and the parties signing a definitive asset purchase agreement.
9. Transition and non-competition
Seller's principal, Elena Alvarez, will provide transition services for ninety days after closing at no additional cost, and for a further ninety days at an agreed hourly rate if Buyer requests. Seller and Ms. Alvarez will agree not to compete with the business within fifty miles for three years after closing.
10. Confidentiality and expenses
The parties will keep the terms of this letter and all information exchanged confidential under the non-disclosure agreement dated March 3. Each party bears its own expenses.
11. Timing
The parties will work toward signing a definitive agreement within forty-five days of this letter and closing within thirty days after that, subject to the lender's process.
12. Binding effect
Except for sections 5 (deposit), 6 (exclusivity), 10 (confidentiality and expenses) and this section, this letter is not binding and creates no obligation to complete the transaction. Either party may end discussions at any time before a definitive agreement is signed.
Signatures
Agreed and accepted.
Daniel Okafor, Buyer Maple Street Wholesale Bakery, Inc., by Elena Alvarez, President
A sample for a fictional deal, with illustrative figures. Not a template, and not legal advice. Your attorney drafts yours.
Before the letter of intent
A letter of intent is written from decisions the buyer has already made. Make them first, in your own words, and the letter is a day's work for your attorney instead of a week's. Nothing here is drafted for you; the worksheet structures your own answers.
Price and terms
Price and terms are not the same thing. A higher price paid over five years from the business's own earnings is a different deal from a lower one paid at closing.
What price will you offer, and what is it built on?
How much of the price arrives at closing, and how much later?
What would make you raise the price, and what would make you lower it?
The seller note
A seller note widens what you can pay and tells the seller you believe in the business. It also puts the seller behind your bank.
Will you ask the seller to carry a note, and how much?
What rate, term and security will you propose?
Have you asked the lender what standby it will require on the note?
Working capital
The business needs cash to run between paying its bills and being paid. Whether it comes with the business is a negotiated term.
What working capital does the business normally carry?
Will you ask for a working capital target and a true-up?
Asset or entity
Most small-business purchases are asset sales. The choice changes what you inherit and how both sides are taxed.
Will you buy the assets or the company?
What is your position on allocation of the price among the assets?
Exclusivity and the deposit
Exclusivity is what you get for spending money on diligence. The deposit is what the seller gets for taking the business off the market.
How long an exclusivity period will you ask for?
How much will you deposit, and when does it go hard?
Conditions and the walk-away
The conditions to closing are the doors you can walk through without losing the deposit.
Which conditions will you name?
What would end this for you, written down before you sign?
The seller after closing
The transition is the handover of what only the owner knows.
How long will you ask the seller to stay, and doing what?
What non-compete will you ask for?
Reviewing a letter of intent
Read the binding-effect clause first and then every other section against it. A section you care about that is not on the binding list is a statement of intent, not a promise. Mark each item below as understood or as a question for your attorney; the questions become your list.
Which parts bind
Exclusivity
Confidentiality
The deposit
Expenses
Governing law and disputes
Which parts do not
Price and structure
Closing date
The seller's transition and non-compete
Conditions to closing
Financing
Diligence
The lease
Licenses and permits
Money and timing
Working capital
The seller note and standby
Allocation of the price
Timeline