Letter of Intent to Sell Business Sample: Full Template and Negotiation Guide (2026)

A letter of intent to sell business sample is the single most useful document a first-time seller can study before signing one, because the LOI sets the gravity of the entire deal: price, exclusivity, deposit, working capital peg, and the binding clauses that lock you in for the next 60 to 90 days. According to the 2026 SRS Acquiom M&A Deal Terms Study, 71 percent of private-target deals close within 5 percent of the LOI price, which means whatever you sign at LOI is, in practice, the deal.

What This Actually Means

A letter of intent (LOI) to sell a business is a written offer a buyer sends a seller after preliminary due diligence shows real interest, but before the definitive purchase agreement is drafted. It is the bridge between “we like your business” and “here is the 90-page asset purchase agreement.” The LOI fixes the major economic and procedural terms so both sides know what they are negotiating toward over the next 60 to 90 days.

An LOI is mostly non-binding on price and structure (because final due diligence has not happened yet), but it contains several sections that ARE binding the moment both parties sign: exclusivity (no-shop), confidentiality, expense responsibility, and sometimes a deposit. Those binding sections are what make the LOI a high-stakes document. Once you sign, you cannot legally shop the deal for the duration of the exclusivity period, even if a better buyer surfaces.

The American Bar Association’s Model Asset Purchase Agreement framework treats the LOI as a “preliminary written expression of agreement” that should always be marked clearly as non-binding except for specified provisions. Pratt’s Stats data shows that on private deals under $50 million, the median time from signed LOI to closing is 74 days, with 18 percent of deals dying between LOI and close, usually over working capital adjustments, financing failures, or a key customer leaving during diligence.

The 12 Things You Need to Understand in an LOI

1. The Parties (Legal Names and Entity Types)

The LOI must name the actual legal entities, not the trade names. “Sunshine Plumbing” is a brand. “Sunshine Plumbing Inc., a Texas corporation” is the legal entity. Buyers often create a newly formed acquisition vehicle (a NewCo LLC) to sign the LOI. Sellers should ask who the ultimate parent or capital source is behind that NewCo. If the buyer is a search fund, an independent sponsor, or an unfunded private equity firm, the LOI is worth less than one from a committed-capital fund because the buyer still has to raise the equity.

2. Transaction Structure (Asset Sale vs. Stock Sale)

Roughly 82 percent of private small-business deals under $10 million are asset sales, per BizBuySell’s 2026 Q1 Insight Report. Asset sales let buyers step up depreciable basis and avoid inheriting unknown liabilities. Sellers prefer stock sales because gains are taxed at long-term capital gains rates (currently up to 23.8 percent including the net investment income tax) rather than a mix of ordinary income on depreciation recapture and capital gains. The LOI must state which structure applies. If the buyer says “asset sale,” your tax bill on a $5 million deal can be $400,000 to $700,000 higher than a stock sale.

3. Purchase Price and Structure

The price line item is rarely just “$X million cash.” A typical lower-middle-market LOI breaks price into four to five components: cash at close, seller note, rollover equity, earnout, and an escrow holdback. SRS Acquiom’s 2026 study reports that on deals between $5 million and $50 million, the average breakdown is 68 percent cash at close, 9 percent seller note, 8 percent rollover equity, 11 percent earnout, and 4 percent escrow. Sellers should push for cash at close to be as high as possible because every dollar in seller note, rollover, or earnout carries collection risk.

4. Deposit / Good Faith Money

Not every LOI includes a deposit, but on deals above $5 million it is increasingly common. Deposits typically run $50,000 to $250,000 and are refundable except in cases of buyer bad faith. The deposit signals that the buyer is serious and gives the seller a measure of comfort during the exclusivity period. If a buyer refuses any deposit, that is a soft signal the deal is less committed than it appears. CT Acquisitions requires a refundable deposit on every LOI we send sellers because it aligns incentives.

5. Exclusivity Period (the No-Shop)

This is the single most negotiated clause in any LOI. The buyer wants 90 days of exclusive negotiation so they can spend money on diligence, lawyers, and accountants without a competing bidder swooping in. Sellers should push for 45 to 60 days with an automatic 15-day extension only if both sides are making material progress. Anything beyond 75 days is excessive on a sub-$25 million deal. The 2026 SRS Acquiom data shows 60 days is the median exclusivity period on private deals between $5 million and $25 million.

6. Due Diligence Access

The LOI defines what the buyer gets to see and when. Standard practice is access to financials (last 3 years P&Ls, balance sheets, tax returns), customer concentration, top 20 customers, key employee list, material contracts, lease, intellectual property, and any pending litigation. Smart sellers stage the diligence: top-level financials and customer data first, with employee identities, customer names, and sensitive IP held back until after a satisfactory diligence checkpoint at day 30.

7. Confidentiality

A mutual NDA should already be signed before the LOI stage. The LOI reaffirms confidentiality and typically extends the term for two to three years post-closing or post-termination. The confidentiality clause is binding from the moment the LOI is signed and survives termination of the deal. If the deal dies, the buyer still cannot use what they learned during diligence to harm the seller competitively.

8. Conditions to Closing

This is where the LOI gets technical. Typical conditions include: satisfactory completion of due diligence, third-party financing (if applicable), regulatory approvals (Hart-Scott-Rodino antitrust filing if the deal is above $119.5 million per the 2026 FTC threshold), key employee retention agreements, landlord consent for lease assignment, customer consent on top accounts (often required if a customer contract has a change-of-control clause), no material adverse change (MAC) clause, and a working capital target. The fewer conditions, the more deal certainty for the seller.

9. Working Capital Adjustment Formula

This is the LOI clause that costs sellers the most money post-close, and most owners do not understand it until it has already hurt them. The working capital peg is the agreed-upon “normal” level of net working capital (current assets minus current liabilities, excluding cash and debt) that must be delivered at close. If you deliver less than the peg, the purchase price is reduced dollar-for-dollar. If you deliver more, you get a true-up payment. The trap: buyers love to set the peg using a trailing 12-month average that includes seasonal highs, while sellers want a structurally lower peg based on the actual cash conversion cycle. On a $10 million deal, a $300,000 difference in the peg is a $300,000 swing in your check at close. Negotiate the peg AT LOI, not in the definitive agreement.

10. Binding vs. Non-Binding Sections

Every LOI should have a clear statement of which provisions are binding and which are not. Binding: exclusivity, confidentiality, expense responsibility, governing law, and any deposit terms. Non-binding: purchase price, structure, conditions to closing, and timeline, all of which remain subject to final diligence and the definitive agreement. If the LOI is silent on this distinction, courts in Delaware and Texas have occasionally found that the entire document was binding, which is a disaster for both sides.

11. Timeline and Key Dates

The LOI should list target dates for: completion of diligence (typically day 45), draft of definitive agreement (day 60), expected sign and close (day 75 to 90). These dates are aspirational unless tied to the exclusivity period. The practical effect: if exclusivity expires before close, the seller can re-engage other buyers. Always tie exclusivity duration to a realistic close timeline plus a small buffer.

12. Expense Responsibility

The default is “each party bears its own expenses.” Buyers occasionally try to push diligence costs onto sellers if the deal dies. Sellers should reject this entirely except in cases of seller fraud or willful breach. The expense clause is binding once signed.

Worked Example: A Real LOI Sample

Below is a full sample LOI for a hypothetical transaction: Acme Capital Partners LLC acquiring Sunshine Plumbing Inc. for $8.5 million. The structure: $6 million cash at close, $1.5 million rollover equity in the buyer’s NewCo, and $1 million earnout over 2 years tied to EBITDA targets. This is a typical lower-middle-market deal structure for a profitable home services business at roughly 4.5x trailing EBITDA.

ACME CAPITAL PARTNERS LLC
1200 Main Street, Suite 400
Dallas, TX 75201

June 3, 2026

Mr. John Sunshine
President and Sole Shareholder
Sunshine Plumbing Inc.
3450 Industrial Boulevard
Houston, TX 77002

Re: Letter of Intent to Acquire Sunshine Plumbing Inc.

Dear Mr. Sunshine:

This letter of intent (this "LOI") sets forth the principal terms and
conditions on which Acme Capital Partners LLC, a Delaware limited
liability company (or its designated affiliate, "Buyer"), proposes to
acquire substantially all of the assets of Sunshine Plumbing Inc.,
a Texas corporation ("Seller" or the "Company").

Except for the provisions of Sections 9, 10, 11, 12, and 13 below,
which are intended to be binding, this LOI is non-binding and merely
a statement of the parties' present intent to negotiate a definitive
agreement on the terms set forth herein.

1. PARTIES AND STRUCTURE
   Buyer: Acme Capital Partners LLC, a Delaware LLC, or a newly
   formed acquisition subsidiary thereof.
   Seller: Sunshine Plumbing Inc., a Texas corporation.
   Structure: Asset purchase. Buyer will acquire substantially all
   operating assets and assume only those liabilities specifically
   identified in the Definitive Agreement (the "Assumed Liabilities").

2. PURCHASE PRICE
   Total enterprise value: $8,500,000, payable as follows:
   (a) Cash at Close:      $6,000,000
   (b) Rollover Equity:    $1,500,000 (17.6% of NewCo at close)
   (c) Earnout:            $1,000,000 over 2 years, paid in two equal
                           installments of $500,000 if NewCo achieves
                           trailing-12-month EBITDA of at least
                           $1,950,000 at each measurement date.

3. WORKING CAPITAL ADJUSTMENT
   The Purchase Price assumes delivery of Net Working Capital
   ("NWC") at closing equal to $475,000 (the "NWC Target"),
   calculated as the trailing 12-month average of current assets
   (excluding cash) minus current liabilities (excluding debt and
   deferred revenue), based on the Company's books and records.
   The Purchase Price will be adjusted dollar-for-dollar for any
   variance from the NWC Target, with a $25,000 collar.

4. DEPOSIT
   Within 5 business days of signing this LOI, Buyer shall deposit
   $150,000 into an escrow account with a mutually agreed escrow
   agent (the "Deposit"). The Deposit shall be refundable to Buyer
   in full upon termination of this LOI for any reason, except in
   the event of Buyer's material breach of the binding provisions,
   in which case the Deposit shall be released to Seller as
   liquidated damages.

5. DUE DILIGENCE
   Seller shall provide Buyer and its representatives reasonable
   access during normal business hours to the Company's books,
   records, contracts, facilities, key employees, and customers
   (subject to mutually agreed customer-contact protocol). Buyer
   shall complete its confirmatory due diligence within 45 days of
   the date of this LOI.

6. CONDITIONS TO CLOSING
   The Definitive Agreement and closing shall be subject to:
   (a) Satisfactory completion of Buyer's due diligence;
   (b) Negotiation and execution of a mutually acceptable Asset
       Purchase Agreement and ancillary documents;
   (c) Receipt of all required third-party consents, including
       landlord consent for assignment of the facility lease;
   (d) Execution of three-year employment agreements with key
       employees identified in Schedule A;
   (e) Execution of a five-year non-competition and non-solicitation
       agreement by Seller's sole shareholder, John Sunshine,
       covering a 50-mile radius from Houston, TX;
   (f) No material adverse change in the business, operations,
       or financial condition of the Company;
   (g) Delivery of the Net Working Capital Target.

7. REPRESENTATIONS AND WARRANTIES
   The Definitive Agreement shall contain customary representations
   and warranties by Seller, subject to disclosure schedules,
   covering title to assets, financial statements, taxes, employee
   matters, litigation, environmental, customer and supplier
   relationships, and intellectual property. Reps and warranties
   shall survive closing for 18 months, except for fundamental reps
   (organization, authority, title, taxes) which shall survive
   indefinitely or until the applicable statute of limitations.
   Buyer intends to obtain a representations and warranties
   insurance policy with a $100,000 retention.

8. ESCROW AND INDEMNIFICATION
   At closing, $425,000 (5% of Purchase Price) shall be held in
   escrow for 18 months to secure Seller's indemnification
   obligations.

9. EXCLUSIVITY [BINDING]
   For a period of 60 days from the date of this LOI (the
   "Exclusivity Period"), Seller and its representatives shall not
   directly or indirectly solicit, initiate, encourage, or accept
   any offer, inquiry, or proposal from any third party regarding
   the sale of the Company. The Exclusivity Period may be extended
   by an additional 15 days upon mutual written agreement.

10. CONFIDENTIALITY [BINDING]
    The mutual confidentiality agreement dated April 15, 2026
    between Buyer and Seller is hereby reaffirmed and shall
    continue in full force and effect. The terms of this LOI and
    the negotiations contemplated hereby shall be kept confidential.

11. EXPENSES [BINDING]
    Each party shall bear its own expenses (including legal,
    accounting, and advisory fees) in connection with the
    proposed transaction, regardless of whether the transaction
    is consummated.

12. PUBLIC ANNOUNCEMENTS [BINDING]
    Neither party shall make any public announcement regarding
    this LOI or the proposed transaction without the prior
    written consent of the other party.

13. GOVERNING LAW [BINDING]
    This LOI shall be governed by the laws of the State of Texas,
    without regard to its conflict of laws principles.

14. TERMINATION
    This LOI shall terminate upon the earliest of: (a) execution
    of the Definitive Agreement; (b) expiration of the Exclusivity
    Period without execution of the Definitive Agreement; (c)
    mutual written agreement of the parties to terminate; or (d)
    written notice by either party of termination.

If the foregoing accurately reflects our mutual understanding,
please countersign below.

Sincerely,

ACME CAPITAL PARTNERS LLC

By: _______________________________
Name: Sarah Chen
Title: Managing Partner

ACCEPTED AND AGREED:

SUNSHINE PLUMBING INC.

By: _______________________________
Name: John Sunshine
Title: President

Date: ____________________________

This sample is illustrative and not legal advice. Every LOI must be reviewed by a qualified M&A attorney before signing. The numbers above are typical for a $1.9 million EBITDA home services business selling at 4.5x. For a deeper look at how home services businesses are valued at exit, see our plumbing exit preparation guide.

What Sellers Should Negotiate Before Signing

Most first-time sellers sign the LOI roughly as presented because they are emotionally invested in the deal and afraid to push back. That is exactly the wrong instinct. The buyer has more flexibility at LOI than at any later point because they have not yet spent the $75,000 to $200,000 on diligence, legal, and accounting that locks them into the deal. Here are the six items every seller should push back on.

Shorter Exclusivity

Push for 45 days with a 15-day automatic extension if both sides are progressing in good faith. Avoid 90 days. The longer the no-shop, the more bargaining power the buyer accumulates as you become committed. SRS Acquiom 2026 data shows the median sub-$25 million deal closes in 74 days from signed LOI, but the diligence and definitive agreement work can be compressed to 60 days with a motivated buyer.

Capped Expense Reimbursement

If the buyer asks for expense reimbursement in any termination scenario, cap it hard (typically $100,000 or less) and limit it to specific buyer-favorable triggers (seller breach, seller withdrawal without cause). Reject open-ended diligence-cost reimbursement language.

Working Capital Peg Negotiated Up Front

This is the single most valuable negotiation point in the LOI. Insist on a specific dollar amount for the NWC peg in the LOI itself, not a vague “to be calculated based on trailing 12-month average.” If you let the peg slide to the definitive agreement, the buyer’s accountants will set it using methodology that benefits the buyer, and you will discover the trap at closing when your check shrinks by $200,000 or more. A typical fight: should the peg include or exclude deferred revenue? Should it use a 6-month, 9-month, or 12-month average? Should seasonal businesses use a peak-month or average-month calculation? Win these fights in the LOI.

Lower Deposit (if Buyer Asks for a Performance Deposit From Seller)

Buyer deposits to seller (refundable) are good. Reverse deposits (seller posting money to buyer) are rare and should be refused. If a deposit is required from buyer, $100,000 to $250,000 is standard. Anything above $500,000 is unusual on a sub-$25 million deal.

No Specific Performance Clauses

Specific performance allows the buyer to force the seller to close even if the seller wants to back out. This is rare in private deals but creeps into LOIs from sophisticated private equity buyers. Strike it. Liquidated damages (capped at the deposit) are sufficient.

Drop the Financing Contingency Where Possible

If the buyer is a committed-capital fund, there should be no financing contingency. If the buyer is a search fund or independent sponsor, a financing contingency may be required but should be tightly defined (specific lender commitments by specific dates). An open-ended financing contingency lets the buyer walk away if the SBA loan does not close, which is a real risk on deals below $5 million where SBA 7(a) financing is common.

Common Mistakes Sellers Make at LOI Stage

Signing Before Reading the Binding Clauses

The price is non-binding, so sellers focus on the price. But the exclusivity, confidentiality, and expense clauses are binding the second you sign. Read those three sections carefully and have your attorney review them before signing anything.

Accepting the First Working Capital Definition

Buyers will offer a working capital definition that is technically correct but economically unfavorable. Calculate what the peg means in dollars at the actual peg date using your own books. If the peg is $50,000 above your typical operating NWC, you will owe $50,000 at closing. Negotiate.

Ignoring the Earnout Math

Earnouts look like free money but rarely pay in full. CapTarget’s 2026 M&A Earnout Survey reports only 47 percent of earnouts pay out at 90 percent or more of the maximum, and 19 percent pay zero. If the LOI structures $1 million as an earnout with EBITDA targets you have never hit, value it at 50 cents on the dollar and negotiate more cash up front.

Not Verifying the Buyer’s Capital

Ask for written proof of funds or a committed equity letter from the buyer’s capital source. A search fund LOI is worth less than a committed-capital PE fund LOI. CT Acquisitions has seen sellers grant 90 days of exclusivity to unfunded buyers who then could not raise the equity, killing the deal at day 85.

Underestimating the Cost of a Failed Deal

If the deal dies at day 70 of exclusivity, you have lost three months of the market, your senior team knows you tried to sell, customers may have heard rumors, and you have likely paid $40,000 to $100,000 in attorney and accountant fees. The cost of a failed LOI is real. Choose your buyer carefully.

Failing to Get a Second Opinion

If you have not engaged an M&A advisor, get one to review the LOI before signing, even on a flat-fee basis. The cost of a $5,000 LOI review is trivial compared to the $200,000 to $500,000 you can lose by signing a buyer-friendly LOI. CT Acquisitions reviews LOIs free for owners considering a sale because we are buyer-paid.

Timeline: From Indication of Interest to Signed LOI to Close

1. Day 0 to Day 30: Indications of Interest (IOIs). After initial buyer outreach and management meetings, qualified buyers submit non-binding IOIs with valuation ranges. Sellers select two to four buyers for the next round.
2. Day 30 to Day 60: Preliminary Due Diligence and LOI Drafts. Selected buyers conduct preliminary diligence (data room access, management calls) and submit draft LOIs with firm price, structure, and key terms.
3. Day 60 to Day 75: LOI Negotiation. Seller’s M&A advisor and attorney negotiate the LOI. Multiple rounds of redlines. Focus on exclusivity duration, working capital peg, deposit amount, and binding clauses.
4. Day 75: Signed LOI. Both parties countersign. Exclusivity clock starts.
5. Day 75 to Day 120: Confirmatory Due Diligence. Full data room access, customer calls, employee interviews, quality of earnings analysis, legal diligence, environmental review (if applicable). Buyer typically spends $100,000 to $250,000 on diligence.
6. Day 105 to Day 150: Definitive Agreement Drafting. Buyer’s counsel drafts the Asset Purchase Agreement or Stock Purchase Agreement. Seller’s counsel redlines. Disclosure schedules prepared by seller’s accountant and attorney.
7. Day 150 to Day 165: Signing and Closing. Definitive agreement signed. Closing conditions satisfied (lease assignment, employment agreements, escrow funded, working capital calculation finalized). Wire transfer at closing.
8. Day 165+: Post-Closing. Working capital true-up at day 195 (60 to 90 days post-close). Earnout measurement at month 12 and month 24. Escrow release at month 18.

The total timeline from IOI to closing is 150 to 180 days for a well-run sub-$25 million deal. Larger or more complex deals (regulatory approval, multiple closings, environmental issues) can take 240 days or more. For owners thinking about timing a sale, see our guide on how long it takes to sell a business.

Frequently Asked Questions

Is a letter of intent to sell a business legally binding?

Most LOIs are mixed: the major economic terms (price, structure, conditions to closing) are non-binding, while specific sections (exclusivity, confidentiality, expense responsibility, governing law) are binding the moment both parties sign. Always confirm in writing which sections are binding. Courts in Delaware and other states have occasionally enforced LOIs that did not clearly state which sections were binding, so the bindingness language matters.

How long does the exclusivity period in an LOI typically last?

The 2026 SRS Acquiom M&A Deal Terms Study shows the median exclusivity period on sub-$25 million private deals is 60 days, with 75th-percentile deals at 90 days. Sellers should push for 45 to 60 days with a 15-day automatic extension only if both parties are making good-faith progress. Exclusivity periods longer than 75 days favor the buyer and reduce seller bargaining power.

What is the difference between an IOI and an LOI?

An Indication of Interest (IOI) is an earlier, lighter document that gives a valuation range and signals serious interest. It typically has no binding sections, no exclusivity, and no specific terms beyond price range and structure preference. An LOI is more detailed: it locks in a specific price, sets exclusivity, includes a deposit, and binds both parties on confidentiality and expenses. Most deals progress from two to four IOIs down to one signed LOI.

Should sellers pay a deposit when signing the LOI?

No. Deposits flow from buyer to seller, never the reverse. A buyer deposit of $100,000 to $250,000 in a third-party escrow account signals the buyer is serious. The deposit is refundable to the buyer if the deal dies for any reason except the buyer’s material breach. If a buyer refuses to post any deposit on a deal above $5 million, that is a signal of weaker commitment.

Can a seller back out of a signed LOI?

Yes, on the non-binding terms (price, structure, closing conditions), the seller can walk away. But the binding sections (exclusivity, confidentiality, expense terms) survive. If the seller withdraws during exclusivity and starts shopping the deal to another buyer, the original buyer can sue for breach of the exclusivity covenant and seek damages or the deposit. Sellers should never sign an LOI they are not prepared to honor.

What happens if due diligence reveals problems after the LOI is signed?

The LOI is conditioned on satisfactory completion of due diligence, so material problems give the buyer the right to renegotiate price or walk away. Common post-LOI surprises that trigger price reductions: customer concentration above 25 percent, declining trailing-three-month revenue, undisclosed litigation, environmental issues, deferred capital expenditure backlog, or working capital below the peg. SRS Acquiom data shows 71 percent of deals close within 5 percent of the LOI price, meaning roughly 29 percent see a price cut between LOI and close.

What to Do Next

If you just received an LOI from a buyer, the worst thing you can do is sign it the same day. Take 48 to 72 hours. Get an M&A attorney to review the binding sections. Get an M&A advisor to model the economics of the price, structure, and working capital peg. The few thousand dollars in review fees can prevent a $200,000 to $500,000 mistake.

If you are earlier in the process and just researching what an LOI looks like before going to market, study the sample above carefully. Note the binding clauses, the working capital language, and the earnout structure. Then talk to two or three M&A advisors before picking one. The advisor you choose will shape how every future LOI looks for your business.

Related guides: How to Sell a Business: Complete 2026 Guide | Business Valuation Multiples by Industry | What Is a Working Capital Peg in M&A?