This page is for the owner of an established, founder-led company in Miami or South Florida whose buyer wants to move to a letter of intent. If a buyer has only just called, start with our guide to responding to an unsolicited offer. If you are still choosing between kinds of buyer, our guide to strategic buyers and private equity comes first.
What is a letter of intent, and does it bind you?
A letter of intent sets out the main terms of a proposed sale before the buyer completes its diligence and the parties negotiate the final purchase agreement. Similar documents go by other names, and the label alone does not tell you what the document commits you to.
Letters of intent usually state that the price and the sale itself do not bind anyone until a final agreement is signed. Certain provisions in the same letter often bind from the day you sign, commonly exclusivity, confidentiality, who pays which costs and how talks end. Some letters also commit both sides to negotiate in good faith. Ask your attorney to mark each provision as binding or not binding and to tell you which obligations survive if the talks stop.
The practical weight of the letter goes beyond its legal effect. Once you sign, its terms become the starting point for the purchase agreement, and reopening a point the letter already settled is harder than raising it now. Anything that would make you walk away belongs in the discussion before you sign.
What should the letter settle before you sign?
Settle the commercial points that decide whether you want this sale at all. Ask your attorney what can wait for the purchase agreement. Provisions meant to bind on signing need their final wording, and the principle of any protection that affects your willingness to sell belongs in the letter. A point left vague can return during diligence, when exclusivity may limit your alternatives. Work through the table with your attorney and tax adviser, and give each row a written position or a note that it remains open.
| Term | What to settle in the letter | What can usually wait for the purchase agreement | Question for your attorney or tax adviser |
|---|---|---|---|
| Price and how it is calculated | The headline price, the earnings figure and period it rests on, and any adjustments the buyer has already assumed | The detailed calculation mechanics, once the basis is agreed | How could these assumptions change what I receive? |
| Payment at closing and later | How much is paid at closing and which amounts are deferred, conditional or paid in the buyer's shares | The detailed documents for payment protections agreed in principle | What could stop a later payment, and what protection can I ask for? |
| What is being bought | Whether the buyer buys your shares or the company's assets, and what stays with you | The full schedules of what is included and excluded | How would this structure affect my tax and the liabilities I keep? |
| Cash, debt and working capital | How cash and debt are treated, and how the working capital the company must deliver at closing will be set | The closing calculations under the agreed method | Could any item reduce my proceeds twice? |
| Exclusivity | What it stops you doing, when it ends and what ends it early | Little, since exclusivity usually binds on signing and its wording should be final then | When may I talk to other buyers again, and what notice applies? |
| Diligence and access | Who at the company the buyer may contact, and who approves contact with employees and customers | The detailed request lists | What safeguards should apply before sensitive information goes out? |
| Confidentiality and your employees | Whether confidentiality terms cover diligence, who may receive the information and what happens to it if talks end, and any restriction on the buyer hiring your employees | Further protections in the purchase agreement | What must be returned or destroyed if talks end, and which restrictions remain enforceable? |
| Your role after closing | The role in principle, whether any commitment has an end and how your pay will be set | Your employment or consulting agreement | Does this role fit my plans, and does it affect any conditional payment? |
| The buyer's conditions | The financing and approvals the buyer still needs, and who is responsible for pursuing them | The supporting documents | How much freedom does the buyer keep to walk away? |
| Costs and ending talks | Who pays which costs, and whether ending the talks triggers any payment | Closing cost mechanics | Could ending talks leave me with a payment or a lasting restriction? |
An engagement letter with a broker or adviser is a separate document and may carry its own exclusivity terms, so have your attorney check how it fits with the buyer's letter. Our guide to choosing a business broker or M&A adviser covers that one.
Should you agree to exclusivity?
A serious buyer will usually ask for it, because diligence costs the buyer time and money and it wants your sale conversations limited to its offer while it does that work. Exclusivity can be reasonable once the price basis and the main terms are settled. Agreed before those points are settled, it can restrict your other conversations while important terms are still open.
Read what the wording restricts. It may bar you from seeking other offers or from continuing conversations already under way, and it may require you to tell the buyer about any approach you receive. Some wording bars seeking other offers while leaving you free to answer an approach you did not seek, so ask your attorney which kind you have and how it applies to each conversation you have today and to what your advisers may say on your behalf.
Ask for something in return. A defined end comes first, with any extension needing your written agreement. The buyer can commit to a diligence timetable and show the progress of its financing. You can also ask for the restriction to end early if the buyer proposes a lower price or misses what it committed to. A buyer that stops responding does not release you by doing so, so your attorney should confirm when you are free to talk to other buyers again.
How can the price change after you sign?
A buyer may propose a lower price after the letter is signed, and price terms that do not bind usually leave that open. Ask your attorney whether a good-faith negotiation obligation or another binding provision affects the proposal or your response. Two different things can happen. Diligence may turn up facts that differ from what the buyer assumed, and it proposes new terms. Or the stated price stays the same while the calculation the letter describes produces a smaller payment than you expected.
Start with earnings. Know which period and which earnings measure the price rests on, and which owner expenses the buyer has added back. If the offer assumes your own pay disappears after the sale, ask what the buyer expects to pay someone to do your work. A buyer that later finds the founder's work needs a paid replacement may reduce the earnings figure, and the price with it.
Working capital comes next. Purchase agreements often adjust the price against an agreed working capital target, measured as specified short-term assets less specified short-term liabilities. The adjustment can raise or reduce your proceeds, and a calculation completed after closing can change the payment again. How the target is set, including for a seasonal business, can move your proceeds even when both sides accept the same accounts. Settle the method and the accounting treatment in the letter.
Cash and debt affect proceeds as well. Ask your advisers to trace the stated price, line by line, to the amount you would receive at closing and then to what you would keep after tax. Write down every assumption behind the price and ask the buyer to explain any later change against that list. The list gives you a basis to challenge a revision, though it cannot make the buyer proceed.
Test the letter's price against your own private estimate of value, prepared before the talks began. Treat a payment that depends on future results as uncertain. It may never arrive, and whether it does can depend on decisions the buyer controls after closing, so ask who will make those decisions and how results will be measured.
What changes in the company once the letter is signed?
Diligence takes a large share of the founder's time, especially where contracts or customer arrangements are poorly documented and the founder is the only person who can explain them. Name one person to coordinate the requests and keep a log of what was supplied and what was said. Decide which operating decisions still need you. Conflicting answers from different people slow diligence and invite more questions. Our guide to handling the buyer's due diligence covers the whole process once the letter is signed.
Some employees will have to help assemble information, so some will learn about the sale before others. Decide who needs to know, with your attorney's guidance on confidentiality, and read our guide to telling your team about a sale before the first conversation.
Customers need a rule of their own. The buyer may want to speak to key accounts to confirm the relationships, and an unexpected call can unsettle one. Agree in the letter who approves any contact and how it will be explained.
Keep managing the company for continued ownership. Before you sign, ask your attorney whether the letter would restrict how you run the company until closing, and which decisions would need the buyer's consent.
How does a buyer read the letter?
Carlos acquires businesses in Miami with Carolina Duran, an interest we disclose, so he signs letters of intent as a buyer. A buyer usually seeks exclusivity and access to information before spending more money on diligence, and access lets it test the assumptions behind its offer. It wants the main terms agreed so that spending is worthwhile, with the ability to revisit them if diligence finds something.
In a founder-led company, one question a buyer wants answered in diligence is whether the business keeps performing after the founder steps back. That question shapes the transition the buyer asks of you and how much of the earnings it will count on. Carlos's line from his banking years is the one we work from: "Your valuation scales only when your absence doesn't threaten the business."
Raise your role after closing now, before you sign. If the offer assumes you will stay involved, ask the buyer to state that assumption in the letter and explain how a different role would affect its proposal. Your authority and how your responsibilities end are easier to agree while the buyer still wants exclusivity. Our guide to staying on after selling covers the role itself.
Should you sign, or keep talking to other buyers?
Sign once your attorney has explained what the letter commits you to and your tax adviser has reviewed the proposed structure, the written terms meet the conditions that made you willing to sell, and the buyer has shown a believable path to closing, including its financing and approvals. A request to move fast deserves a reason. It does not settle an open disagreement.
Go back to what you wrote down before the talks began. Compare the proceeds the letter would produce with what you need, and check that the role after closing fits the life you planned. Look for any risk you had already decided not to accept. Then write your walk-away terms before you reply to the next draft, specific enough to guide a decision late in a long negotiation. Those private limits are separate from any right in the letter to end the talks or the exclusivity.
If other buyers are still interested, compare their conditions and their funding as well as their prices. Where you would keep a stake, our guide to minority and majority stakes covers the control questions to settle first. If a point that matters is still open, return a marked-up draft that lists it, and keep talking until it is settled, within any obligations you have already signed.
What should you ask your attorney and tax adviser?
- Which provisions in this letter would bind me, and which would survive if the talks end?
- What would stop me ending exclusivity or talking to other buyers again?
- How would a sale of shares compared with a sale of assets change my tax and the liabilities I keep?
- Which definitions could change what I receive at closing?
- What protection should I ask for on deferred or conditional payments?
What should you do next?
- Send the draft to your attorney and tax adviser. Include any promises the buyer made in conversation so they can check that the wording reflects them.
- Trace the proceeds. Ask for a written bridge from the stated price to what you would receive at closing.
- Mark the open points. List every term that could change your decision, your role after closing included.
- Test the buyer's path to closing. Ask about its financing and the approvals it still needs.
- Settle how the price is calculated before you sign, along with the headline figure.
- Have your own attorney mark which provisions bind and which survive if the talks end.
- Agree to exclusivity only with a defined end and commitments from the buyer in return.
- Raise your role after closing while the buyer still wants exclusivity.
- Compare the letter with what you wrote down before the talks began.
The Leadership Scorecard takes ten minutes and shows which parts of the company still depend on you, one of the questions a buyer's diligence examines.