5 – Submit a Letter of Intent

Following is a summary of the next steps in the process if you wish to submit an offer on the business:

  • Term Sheet: The Term Sheet, which you complete, is a short form summary of the key terms contained in the letter of intent (LOI). It’s a checklist of the key deal points you should consider before submitting an offer on the business.
  • Letter of Intent (LOI): You may have your attorney prepare the LOI for you, or you may request that we prepare the LOI on your behalf.

Term Sheet

The Term Sheet is a list of items you should consider before you draft an offer. It’s for discussion purposes only and allows you to focus on structuring the key elements of the transaction before you document those terms in a more formal LOI. You can either use the Term Sheet as a tool for your attorney when preparing the LOI or provide us with the key terms you’d like to include if we draft it on your behalf.

The Term Sheet is a short list of the critical points of the transaction, such as the selling price, earnest money deposit, down payment, financing terms, length of time for due diligence, training agreement, non-compete agreement, contingencies, and other essential terms.

You’ll want to decide on the following basic terms of the deal before you prepare the LOI:

  • Purchase price
  • Earnest money deposit, if applicable
  • Cash down payment
  • Terms of the seller note, such as the amortization period and interest rate
  • Length of the due diligence period
  • Terms of the transition period
  • Terms of a non-compete agreement
  • Any contingencies

Letter of Intent

The letter of intent (LOI) is commonly drafted by the buyer if they’re a private equity firm or other institutional buyer (e.g., family office, search fund, etc.), while we commonly draft the LOI if the buyer is an individual or smaller company. If we prepare the LOI on your behalf, the basic terms need to be outlined in the Term Sheet before we draft the LOI, then you’ll have the opportunity to review the LOI before it’s presented to the seller.


The LOI will contain a list of contingencies the parties will attempt to resolve before closing occurs. These can include the buyer obtaining approval for a license, securing bank financing, or numerous other contingencies.

LOI vs. the Purchase Agreement

The LOI doesn’t contain the necessary language to complete closing, but it does allow both parties to commit to the essential terms so they can begin due diligence and work toward preparing the purchase agreement. The LOI is replaced by the purchase agreement prior to closing. Remember, you’re not committed to the transaction until the due diligence period has concluded and all contingencies have been resolved.

Here are the primary elements that we recommend including in the LOI:

Purchase price and terms

  • Earnest money deposit, if applicable
  • Seller note — length, interest rate
  • Bank financing

Legal transaction structure

  • Asset sale
  • Stock sale

Due diligence

  • Length of the due diligence period


  • Bank financing
  • Third-party approvals — landlord, franchisor, distributor, etc.
  • Licensing


  • Some offers/LOIs include language addressing confidentiality that supplements the initial NDA.

Expiration Date

  • The LOI should include an expiration date so you don’t have an open-ended commitment.

Earnest Money Deposit

If the seller accepts your LOI and you’re an individual or represent a smaller company that has made no previous acquisitions, we will request that you submit an initial earnest money deposit, which is typically 5% of the purchase price. The earnest money is held by a neutral third party, such as an escrow agent, and applied toward the purchase price at closing. Earnest money deposits offer demonstrable proof that you have a legitimate interest in the business and help secure the cooperation of the seller. They are generally not required from institutional buyers.

Assets Included in the Purchase Price

The purchase price normally includes the following assets:

  • Furniture, fixtures, equipment, vehicles, and all other hard assets used in the business
  • Leasehold improvements
  • Transition Services Agreement (TSA)
  • Covenant not to compete
  • Business name, website, email addresses, phone numbers, software
  • Business records, financial records, client and customer lists, marketing materials, contract rights
  • Trade secrets (whether registered or not), intellectual property (patents, trademarks, etc.)
  • Transfer of licenses and permits

If the real estate is also being offered for sale, it’s customary to prepare a separate purchase agreement for the purchase of the real estate property.

The asking price does NOT normally include the following assets:

  • Real estate and land (this can be sold but should be priced separately)
  • Assumption of any long-term liabilities or debt
  • The seller’s entity (Corporation/LLC), unless the sale is structured as a stock sale

Asset vs. Stock Sale

When buying or selling a business, a transaction generally takes one of two forms: an asset sale or a stock sale.

Asset Sale

In an asset sale, the buyer (e.g., John Smith) or their entity (Corporation, LLC, etc.) purchases the individual assets of the business from the seller. The seller retains ownership of the entity after closing. John Smith forms an entity, and that entity purchases the individual assets of the seller (technically, the seller’s entity: Corporation, LLC, etc.). The parties jointly decide which assets and liabilities are included in that transfer. The sale usually includes all hard assets necessary to operate the business, such as equipment, supplies, and inventory.

Stock Sale

In a stock sale, the seller (e.g., Jane Jones, as an individual) sells the actual ownership of their entity (Corporation, LLC, etc.) to the buyer. In a stock sale, the buyer purchases the Jones entity (Corporation, LLC, etc.). By purchasing the entity, the buyer then assumes ownership of the assets and liabilities owned by the entity.

Gain a fundamental understanding of M&A Basics, specifically the distinctions between Asset and Stock Sale strategies.