The Signature That Takes a Seller Off the Market: What Advisors Need to Know About Letters of Intent
Most of a letter of intent is non-binding, yet the provisions that do bind a seller can take them off the market before a single economic term is locked in. That imbalance is easy to miss, because the LOI is usually the first document to put real terms on paper, and clients understandably treat it as a win.
For advisors, the LOI is a decision point rather than a formality. Once a client signs, their options narrow while the price and structure they are celebrating can still move. The protections a client needs are far easier to build in before signature than to recover afterward.
A recent article from Exit On Top breaks down what a letter of intent covers, which parts are typically binding, and what sellers should negotiate before signing.
Here is what advisors working with business owners approaching a sale need to understand:
Separate What Binds From What Merely Signals
Economic terms such as price, structure, and conditions are generally not legally binding and remain subject to due diligence. Confidentiality and exclusivity provisions usually are.
A client who hears the headline price as a commitment may start planning around a number that is still only a statement of intent. The advisory team should frame that price as a proposal until the definitive purchase agreement is complete.
Treat Exclusivity as the Real Commitment
The exclusivity period, often called a no shop clause, means the seller stops negotiating with other buyers for a set period while this buyer completes diligence. Signing is a genuine commitment even though the price is not locked in.
Before a client signs, advisors should ask a direct question: is the owner ready to move forward with this specific buyer? The length of the exclusivity window is negotiable, and a CPA or wealth planner who sees an unresolved readiness issue should raise it now, while the client can still weigh alternatives.
Define the Terms That Move the Final Number
An LOI typically sets out the price and how it will be paid (cash, seller financing, an earnout, or a combination) and whether the deal is an asset or stock sale. When a price adjustment mechanism such as a working capital target is clearly defined at this stage, sellers are far less likely to be surprised by a lower number at closing.
The client’s CPA should examine how any working capital target is defined, and the attorney should weigh in on structure, so the terms are specific rather than open to reinterpretation.
Map the Conditions and the Timeline
The LOI also lists the conditions a buyer must satisfy, such as financing or due diligence results, and proposes a timeline to closing. Loosely written conditions can give a buyer room to walk away or push for a lower price later.
Advisors should confirm clients understand exactly which conditions remain open and prepare them for the due diligence and definitive agreement drafting that begin once the LOI is signed.
The M&A advisor, CPA, attorney, and wealth planner each see different risks in the same document, and those perspectives matter most when they are shared before signing. That is the value of the XPX model of multidisciplinary collaboration: bringing the full advisory team to the table before the signature takes the client off the market.
Read the full article here:
What Is a Letter of Intent When Selling a Business?
