Why Every Business Deal Should Start With a Letter of Intent

After 30 years closing business deals, one pattern is consistent: the transactions that were the most enjoyable and closed smoothly started with a Letter of Intent.

What Is a Letter of Intent?

A Letter of Intent (LOI) is a short document (typically 2 to 3 pages) that pins down the key terms of a business deal before either party commits to a full contract. Price, structure, timeline, conditions: all on paper before anyone cuts a check or hires a lawyer.

Most LOIs are non-binding on the business terms but include binding provisions for confidentiality and sometimes exclusivity. Either party can walk away from the deal but neither can walk away with the other's trade secrets.

The Five Problems an LOI Solves

1. It Forces Clarity Early

Most deal disputes do not start with bad faith. They start with assumptions. The buyer thinks the price includes inventory. The seller does not. An LOI forces both sides to write down what they believe they are agreeing to before anyone spends money on lawyers, accountants, or due diligence.

2. It Saves Legal Fees

A full acquisition agreement runs $5,000 to $25,000 in legal fees. An LOI runs a few hundred. If the deal is going to fall apart over a fundamental disagreement (and roughly half do) better to find out at the $199 stage than the $15,000 stage.

3. It Protects Confidential Information

Business negotiations require sharing sensitive information: financial statements, customer lists, trade secrets, proprietary processes. The LOI's confidentiality provisions are binding even if the deal falls through. That protection survives the handshake and the breakup.

4. It Creates Negotiating Leverage

Once both parties sign an LOI, momentum shifts toward closing. The terms are documented. The framework exists. Renegotiating fundamentals without cause becomes harder to justify. When a seller is fielding multiple offers, a signed LOI puts you ahead of other buyers.

5. It Speeds Up the Final Contract

Your attorney drafts the definitive agreement from the LOI, not from a blank page. The big questions of price, structure, and conditions are already resolved. The final contract becomes documentation, not negotiation. That distinction can save weeks.

When Do You Need an LOI?

Not every transaction requires one. An LOI works best in any deal that involves significant capital, ongoing obligations, or terms that could be interpreted in multiple ways:

• Buying or selling a business
• Entering a partnership or joint venture
• Commercial real estate transactions
• Franchise agreements
• Major vendor or supplier contracts
• Investment deals and term sheets
• Private loans
• Independent contractor agreements

What Should an LOI Include?

A solid LOI covers seven elements:

1. The Parties: Who is on each side of the deal, including legal entity names.
2. The Transaction: What is being bought, sold, licensed, or agreed to.
3. Price and Payment: The purchase price or value exchange, and how payment will be structured.
4. Timeline: Key dates for due diligence, closing, and any transition periods.
5. Conditions: What must happen before the deal closes (financing, inspections, regulatory approvals).
6. Confidentiality: Binding provisions protecting information shared during negotiations.
7. Exclusivity: Whether either party is prohibited from negotiating with others during the LOI period.

The Bottom Line

For a few hundred dollars, an LOI gives you clarity on terms, protection on confidential information, and momentum toward closing. All three are expensive to recover once a deal starts going sideways.

If the deal matters, start with the LOI. It is the least expensive document that prevents the most expensive mistakes.