Most sellers assume the hard negotiating happens in the definitive purchase agreement. In practice, a large share of the outcome is decided earlier, in the letter of intent — often before a seller has retained transaction counsel. By the time the LOI is signed, exclusivity kicks in, the buyer starts spending real money on diligence, and the seller's leverage to renegotiate price or structure drops sharply. Getting the LOI right is not a formality — it is the highest-leverage moment in the entire process.
Price is a starting point, not the final answer
The headline purchase price in an LOI rarely equals what lands in a seller's account at closing. Before signing, sellers should understand how the LOI treats the target working capital level and how any shortfall or surplus will be trued up, whether any portion of the price is deferred through a seller note or earnout, how transaction expenses and existing debt will be paid off at closing, and what size indemnity holdback or escrow the buyer is proposing. A seller who signs an LOI without pressure-testing these mechanics can be surprised, months later, by a smaller wire than expected.
Exclusivity cuts both ways
An exclusivity, or "no-shop," period is standard — buyers need time and confidence to invest in diligence without a seller shopping the deal elsewhere. But for a seller, that same period is time the business is effectively off the market, with no guarantee the deal closes. Sellers should negotiate a period that is long enough to give the buyer a fair shot, but not so open-ended that a slow or indecisive buyer can tie up the business indefinitely. A defined outside date, after which the seller can walk or re-engage other parties, is worth insisting on.
Set expectations on reps, warranties and indemnification early
The LOI typically does not spell out detailed representations and warranties, but sophisticated sellers use it to set the tone — for example, flagging an expectation of a reasonable survival period, a capped indemnification obligation, and use of representation and warranty insurance where deal size supports it. Raising these expectations at the LOI stage, rather than for the first time in the purchase agreement, avoids late-stage friction that can delay or derail a closing.
Most sellers do not lose value at the offer stage — they lose it in the definitive documents that follow an LOI that was too thin on the terms that actually matter.
Think about life after signing, not just the price
Sellers are often focused on price to the exclusion of transition terms — how long the seller (or key employees) are expected to stay on, the scope of any non-compete or non-solicit, and how customer and employee communications will be handled. These terms affect the seller's life for months or years after closing, and they are far easier to negotiate favorably before a buyer has exclusivity than after.
The bottom line
A seller's negotiating leverage is rarely higher than in the days before signing an LOI. Terms that feel like details at that stage — the working capital mechanism, the exclusivity period, the tone set on indemnification — routinely turn out to be the terms that shape the entire transaction. Sellers are well served by treating the LOI with the same seriousness as the definitive agreement it precedes.
