What to Ask Before the LOI — And What to Expect After

A Buyer & Seller Guide to the Most Strategic Stage of a Deal

“The LOI feels exciting — but it’s also where most buyers fail or overcommit and most sellers lose leverage.”

Letters of Intent (LOIs) are often treated like a victory lap. Buyers feel momentum. Sellers feel validated. Advisors feel progress.

But in reality, the LOI is where deals are most fragile. Cracks in the foundation are set here.

LOIs are technically non-binding (unless specified otherwise) — yet the consequences of what’s written (or omitted) can cost months of time, hundreds of thousands of dollars, or the entire transaction. What you fail to ask before submitting or accepting an LOI often surfaces later as retrades, delays, or collapsed deals.

This article breaks down what buyers should ask before submitting an LOI, what sellers should verify before accepting one, which LOI terms matter more than price, and what to realistically expect once exclusivity begins. Take these steps and your chances of the LOI getting executed and done will increase.

Why the LOI Is a Turning Point in Every Deal

The LOI is not just an agreement, it reshapes deal leverage, timelines, and expectations.

What the LOI Really Is

• A roadmap, not a guarantee
• A signal of seriousness to sellers, lenders, advisors and brokers
• A gatekeeper to due diligence
• A leverage reset — often favoring the buyer once exclusivity begins

Once an LOI is accepted, sellers & brokers usually pause marketing, stop engaging other buyers, and disclose sensitive information in an exclusivity clause is in the document. That shift alone makes the LOI one of the most consequential documents in the transaction.

Common misconceptions of LOI’s when first signing them:

• “We’ll figure it out in diligence”
•  “It’s just a formality”
• “Price is what matters most”

In reality, structure, risk allocation, and execution capability matter far more than headline price.

Questions Buyers Must Ask Before Submitting an LOI

Submitting an LOI without clarity is how buyers lose credibility and how sellers lose time.

Business & Operations Questions

Before committing to price or structure, buyers must understand what they’re actually buying.

• What exactly is being sold and how is it to be purchased: asset sale or stock sale?
• Is the owner essential to revenue or operations?
• Are key employees under contract or at-will?
• Are there licenses, certifications, or permits that must transfer or be reissued?
• What systems and processes exist independent of the seller?

If the business can’t operate without the seller, the LOI must reflect that risk. Often this means reduced or drawn-out compensation to the seller to reconcile the risks.

Financial Reality Checks

Financial misunderstandings are the #1 cause of LOI retrades.

• How is EBITDA calculated?
• Which owner add-backs will not transfer post-close?
• Is cash flow consistent or volatile?
• What working capital is required to operate day one and how do we calculate it?
• Are there deferred capital expenditures or equipment replacements coming?

Buyers should test whether cash flow supports both operations and debt service, not just valuation. A good place to start is with  a quality of earnings report (Q of E) to be drafted into the LOI to be completed during due diligence to support the acquisition price. Enough information will be provided to calculate the EBITDA or Cash flow prior the LOI but verifying that is for due diligence.

Legal & Structural Questions

Ignoring legal risk early almost guarantees surprises later.

• Any pending or threatened litigation?
• Customer or vendor concentration risks?
• Long-term contracts with assignment restrictions?
• Personal guarantees tied to leases or supplier agreements?
• Environmental, regulatory, or compliance exposure?

If these exist, the LOI must address them, not defer them. Good brokers identify these potential risks early on and factor that into the business valuation.

Seller Expectations & Deal Dynamics

Misaligned expectations stall deals even when numbers work.

• What is the seller’s desired timeline?
• Will the seller remain involved post-close?
• Is seller financing available or expected?
• Are earn-outs or holdbacks on the table?
• What does a “successful exit” look like to the seller?

A strong LOI reflects both financial and human realities. It also accounts for any restrictions that financing could have on implementing some of the terms. For example, SBA loans have strict guidelines for owner transition timelines and equity roll overs. Be sure you understand these guidelines before submitting the LOI.

Questions Sellers Should Ask Before Accepting an LOI

Accepting the wrong LOI can be worse than rejecting all of them.

Buyer Capability & Credibility

Not all buyers who submit LOIs can close.

• How is the deal being financed?
• Is there proof of funds or a lender relationship?
• Has the buyer closed similar deals?
• Who is the actual decision-maker? This might be the most overlooked question.

Sellers should remember: an LOI is a promise, not proof. Understanding who rubber stamps a deal to be accepted matters. Especially when working with Private Equity groups, family offices and large strategics. Often the first conversation is not with the final decision maker.

Deal Execution Risk

Execution risk is often underestimated.

• Is the buyer SBA-dependent or financing-dependent?
• What happens if financing fails?
• How long will diligence realistically take?
• Are there deposits or breakup fees?
• Are timelines and milestones clearly defined?

Without structure, exclusivity becomes a trap. Deadlines not set in hard dates often get pushed back and abused. Strong guidelines and dates hold the deal accountable for both parties. It also flushes out parties that have no intention or capacity to perform quickly. An LOI without proper date markers and realistic timelines will most certainly fail or become toxic due to the lack of structure.

Post-Close Reality

Post-close obligations can materially affect net proceeds.

• What transition is expected of the seller?
• Will there be an employment or consulting agreement?
• How restrictive is the non-compete?
• How long is the seller tied to performance?

Sellers should price their time and risk, not just the business.

Buyers take note: not properly discerns the seller’s commitment to post close transition is a major mistake. Get the transition plan in writing and agreed too asap after the LOI.

Sellers take note: not all employment agreement or post-closing terms will be complete during the LOI stage. They will be finalized prior to the closing documents. It’s your responsibility to ensure the buyer fully understands your roles, duties and day to day to properly set up the employment agreement, training and transition timeline or consulting agreement post close.

LOI Terms That Matter More Than Price

Price gets attention. Terms determine outcomes.

Key Economic Terms

• Cash at close
• Stock vs Asset Sale
• Seller note size, interest, and duration
• Earn-out structure and triggers
• Working capital adjustments
• Treatment of debt and liabilities

A higher price with poor structure often nets less.

Sellers Take Note: Just because it’s an LOI at or above asking price, doesn’t make it the best deal. The fine print below matters far more. 1 page LOI’s with the asking price but vague terms are to be treated with strong caution.

Control & Risk Allocation Terms

• Exclusivity length and milestones
• Due diligence duration
• Access to employees and customers
• Conditions precedent
• Financing contingencies

Poorly defined control terms are where leverage quietly disappears and disagreements amongst parties arise.

Red Flags in LOIs

• Vague or overly short LOIs
• Long exclusivity with no milestones
• Undefined working capital (depending on the size and business)
• “Subject to buyer satisfaction” clauses
• No clarity on asset vs stock sale

If an LOI creates more questions than answers, it’s not ready and should be countered or rejected.

True Story: I have seen LOI’s submitted that do not indicate what kind of sale it even is. Asset or stock. Hard to determine value and walk away if you can’t determine how the company is even going to be purchased.

What to Expect After the LOI Is Signed

Once exclusivity begins, the deal enters its most fragile phase.

What Typically Happens

• Seller discloses deeper financial and operational data
• Buyer begins diligence with accountants, attorneys, and lenders
• Timelines stretch
• Risk tolerance is tested
• Leverage subtly shifts

This is where discipline matters most. The better, more specific and agreeable the guidelines and terms are the better chance the deal progresses here.

Why Deals Fall Apart Post-LOI

• Financing assumptions fail
• Add-backs don’t hold up
• Owner dependency is worse than expected
• Working capital disputes emerge
• Buyer confidence erodes

Most failures weren’t surprises — they were unasked questions or worse, misrepresented information. Sometimes skeletons in the closet come out that are unforeseen. It happens. Goodwill developed during the initial meetings, LOI counters, etc allows to work through these possible hiccups.

Note to Buyers: Every business has flaws, mistakes and sometimes unforeseen issues. Don’t take it person or view it as seller dishonesty. You will have these hiccups to work through. Expect them and plan for them.

How Brokers Protect Value at the LOI Stage

A skilled broker is most valuable before exclusivity, not after.

Broker Value Includes

• Screening buyer seriousness pre-LOI
• Clarifying expectations on both sides
• Structuring defensible terms
• Preventing wasted exclusivity
• Managing retrades professionally

The buyer may submit the LOI — but the broker protects the deal’s leverage. A properly structured LOI is far better than a one-sided document that will implode. If either buyer or seller can’t agree to that, its possible the business won’t be sold.

Real-World Examples

• LOI accepted without financing clarity → deal collapses after 90 days
• Aggressive buyer LOI → retrades during diligence → seller restarts market weaker
• Structure negotiated upfront → smoother diligence → faster close

The difference wasn’t price. It was preparation.

Final Takeaways

• LOIs are leverage events, not paperwork
• Questions asked early prevent pain later and if you don’t understand ask and ask again. Be confident in what you are signing.
• Structure beats headline price
• Preparation reduces surprises
• The best LOIs reflect reality, not optimism

Whether you’re buying or selling, the LOI is where discipline matters most. Treat it with the seriousness it deserves because the rest of the deal depends on it.

If you’re selling, buying, or advising in this space — now is the time to get serious.

In this episode, we go deeper on:

• Actionable tips,
• Real-world stories
• A deeper breakdown of the topics covered above

Follow the Steps to Sold Podcast on LinkedIn , listen the Steps to Sold Podcast on Spotify. Connect with Brandon Bourgeois on LinkedIn and Chris Sater on LinkedIn.