In this guide
The short answer
An LOI isn’t a price announcement. It’s a map of the deal the buyer wants to control.
Some provisions may be described as nonbinding while exclusivity, confidentiality, access, expenses, governing law, or other provisions may be expressly binding.
Transaction counsel should identify what is binding, what is missing, what remains conditional, and what you may be giving up before the definitive agreement exists.
Six things to pressure-test before the no-shop clock starts.
Questions to consider
Price and payment are not the same.
Separate:
- Cash at close
- Assumed or repaid debt
- Escrow
- Seller financing
- Earnout
- Rollover equity
- Purchase-price adjustments
- Any value tied to continued employment
Two offers with the same headline price can leave you with very different results.
Exclusivity changes the negotiating field.
Understand the length of any no-shop period, extension rights, milestones the buyer must meet, information the buyer must provide, and how you can terminate if financing, diligence, or documentation stalls.
Working capital can move the final price.
Identify the proposed:
- Working-capital definition
- Target
- Measurement period
- Accounting consistency
- Cash and debt treatment
- Inventory rules
- Deferred revenue
- Mechanism for resolving a post-closing disagreement
You may be part of the consideration.
Employment, consulting, noncompetition, rollover, transition assistance, indemnification, representations, and personal guarantees can carry economic and personal consequences beyond the purchase price.
Financing certainty deserves evidence.
Clarify who the buyer is, who controls the investment decision, whether capital is committed, which lender or committee approvals remain, and what conditions allow the buyer to re-trade or walk away.
Tax structure can’t wait until the end.
These may change the modeled proceeds:
- Asset versus equity structure
- Allocation
- Entity type
- Installment payments
- Rollover
- Earnout character
- State sourcing
- Your residence
Bring tax professionals in before the structure hardens.
Before your signature
Turn the LOI into a decision checklist, not a momentum document.
Build a sources-and-uses bridge
Reconcile every component from headline value to expected cash at close and deferred or contingent value.
Mark every condition and open definition
List financing, diligence, customer, regulatory, employment, working-capital, and documentation conditions that can still change the economics.
Model what you’d actually keep
Compare likely proceeds with taxes, debt, spending, existing capital, family priorities, and the life the transaction must support.
Put the right professionals on it
Transaction counsel, tax professionals, and other specialists should review the provisions within their scope. One advisor should not impersonate the entire team.
Free: the LOI Review Kit
This page explains the review.
The kit is for doing it.
A fillable PDF to work through with your attorney, tax professional and advisor while the offer is on the table.
- Offer economics and open-conditions worksheets
- Questions for your attorney, tax professional and wealth advisor
- A before-you-sign checklist and an owner outcome page