What happens after you accept a letter of intent?

After you accept a letter of intent (LOI), exclusivity begins, the buyer starts confirmatory due diligence, and the purchase agreement gets drafted. The LOI settles the main terms, not the details, so price and structure can still move. Expect weeks to months of document requests before closing.

You signed, or you are about to, and the hard part feels over. For the buyer it has just begun: now it checks everything you told it. For you, it is a stretch of document requests, confidentiality, and running the business while the deal is not yet certain.

Is a letter of intent binding?

Partly: an LOI states which of its terms bind you and which do not. A letter of intent usually states that its proposed terms are not legally binding, while some provisions, such as confidentiality and exclusivity, are often written to be binding. That is general practice, and the wording of your letter decides what applies to you. Read it line by line before you sign, and again before you rely on it, marking which terms bind you. The price and structure in it describe where the talks stand, and they are not a promise.

What happens, in order?

The steps overlap, and the order below is the usual one:

1. Exclusivity starts: you agree not to talk with other buyers for the period in the letter, and extensions are not unusual.
2. A data room opens: a secure online folder where you upload documents and the buyer's team reads them.
3. The buyer's accountants test your numbers. When the buyer finances a purchase of $3 million or more with an SBA-backed loan, the lender requires a quality of earnings review, an independent report on how reliable and sustainable your earnings are.
4. Confirmatory due diligence covers contracts, taxes, employees, customers, and operations.
5. The purchase agreement is drafted. It fixes the price, the structure, and what you promise (how to evaluate a business acquisition offer covers those terms).
6. The buyer lines up financing and the consents it needs, such as lender approval and assignments of contracts.
7. Closing: both sides sign, the money moves, and ownership changes.

The whole sequence is the second half of the M&A process, and its length depends on the size of the deal and on how ready your records are.

What does exclusivity ask of you?

Exclusivity means you stop talking to other buyers for a set period, and the letter usually asks for more than that. Look for these terms in yours:

• A promise not to solicit, negotiate with, or share information with anyone else about a sale.
• A duty to run the business in the ordinary course, which can limit large purchases, new long contracts, and changes in key staff without the buyer's consent.
• A duty to give the buyer access to information, people, and sites, and to answer requests promptly.
• Confidentiality about the talks, including what you may tell employees, customers, and suppliers.
• The length of the period and how it can be extended or ended.

What does the buyer ask for?

Expect requests in five areas, usually in a checklist you answer through the data room:

Why can a deal fall apart after an LOI?

An LOI is a plan, and diligence can change the plan. Reasons a deal can fail after the letter is signed include:

• Results fall below what the buyer saw when it made the offer.
• Diligence finds a problem, such as one customer holding a large share of revenue, agreements that exist only by handshake, or tax filings that do not match the books.
• The buyer's financing falls through or takes longer than the exclusivity period.
• The buyer asks to lower the price and you will not accept the new number.

Keep the business performing while the buyer reviews it, and raise any problem yourself, early, with an explanation, instead of letting the buyer find it in the data room.

What do you tell employees and customers?

Less than you may want to, and not yet. The LOI and the NDA usually limit what you may say, so check what they allow you to share, with whom, and when. Most owners start with the few key employees whose help the buyer will need, say plainly that the talks are confidential and not final, and keep customer relationships normal. If the sale will affect your employees' jobs or pay, plan the timing and the message alongside your employment counsel.

What to do next

1. Read the LOI for what binds you, how long exclusivity lasts, and what it asks of you while it runs.
2. Open a data room before the buyer asks, and load financials, contracts, and corporate records by the areas in the table.
3. Reconcile your monthly financials to your tax returns and bank statements, so the buyer's accountants reach the numbers you did.
4. Name one person on your team to field document requests so they do not all land on you.

If you want help with steps 2 and 3, our M&A advisory work reconciles your monthly financials to your tax returns and bank statements, builds the data room by area, and prepares answers to the buyer's document requests before they arrive. If you are choosing between buyers before you sign, how to qualify an M&A buyer lists the checks to run first.

Questions owners ask

Can the price change after an LOI?

Yes. The price in a letter of intent is usually not binding, and diligence findings, working capital, or financing can move it. Ask the buyer which findings it says would change the price, and compare any new number with your other options before you answer.

Can you talk to other buyers during exclusivity?

Not during the period in the letter; that is what exclusivity means. Check what the letter allows, how the period can be extended or ended, and what you may say to other buyers who contact you.