Letter of intent (LOI)

A letter of intent is a short document recording the price, structure and timetable a buyer and seller have agreed in principle, signed before diligence begins and before any binding purchase agreement exists.

What an LOI covers at $50k–$150k

At this size the LOI runs to two or three pages. It names the headline price, describes broadly what is being acquired, sets an exclusivity window, gives a target completion date, and states who carries which costs. Most of it is deliberately non-binding, because the price is an intention rather than a promise. The clauses that normally do bind are confidentiality, exclusivity and costs.

Where it bites

Exclusivity is the part sellers underestimate. For the length of the window, usually 14 to 30 days at this deal size, the seller stops taking other conversations. If the buyer drifts, the seller comes out weeks later with no deal and cooled interest everywhere else. A tight window with a firm end date does more for the seller than a generous one does for the buyer.

A worked example

A buyer signs an LOI at $120,000 for a micro-SaaS running at $3,300 MRR and about $40,000 of trailing annual profit, with 30 days of exclusivity and a 30-day handover after completion. Diligence shows two accounts producing 35 per cent of revenue, one of them on a rolling monthly contract. The buyer comes back at $104,000, citing concentration. The seller then chooses between a 13 per cent cut and walking away after a month off the market.

Why it matters when you exit

The LOI is where an interested conversation becomes a deal with a price, a scope and a clock. Written carefully, it surfaces the awkward questions before exclusivity starts rather than three weeks into diligence. Sellers who treat it as a formality are usually the ones renegotiating from a weak position later.

This is general information. A deal at this size still warrants a lawyer's eye on the document before anyone signs it.

Related: due-diligence, asset-purchase-agreement, escrow