A Letter of Intent establishes the framework for a proposed business acquisition.

It typically outlines the purchase price, payment structure, assets or ownership interests to be acquired, anticipated closing timeline, and conditions that must be satisfied before closing.

The LOI helps both parties understand the principal terms and establishes the basis for the work that follows.

However, most LOIs are largely non-binding regarding the proposed purchase price and other commercial terms. Depending on the agreement, certain provisions, such as confidentiality and exclusivity, may be legally binding.

This distinction matters.

When a seller signs an LOI containing an exclusivity provision, they may agree to suspend negotiations with other prospective buyers for a specified period.

During this time, the selected buyer conducts due diligence and works toward closing. Meanwhile, the seller invests time and resources in a transaction that has not yet been completed.

Both parties intend to move forward, but the buyer still needs to verify the information underlying the offer, arrange any necessary financing, and negotiate the definitive purchase agreement.

The LOI establishes what the parties intend to accomplish. The work that follows determines whether they can complete the transaction on those terms.

Once the LOI is signed, the buyer typically begins a more detailed examination of the business.

Until this point, the buyer has relied on information available during the initial evaluation and negotiation process. Due diligence provides an opportunity to verify that information and examine matters that may affect the acquisition.

The review can cover financial statements, tax returns, revenue trends, customer and supplier relationships, contracts, employee arrangements, outstanding liabilities, and operational risks.

Its scope depends on the size and complexity of the business, the transaction structure, and the buyer’s requirements.

For the seller, this stage can feel considerably different from the earlier negotiations.

The focus shifts from discussing the company’s value and future potential to examining its financial and operational details.

Buyers may request explanations for revenue fluctuations, adjustments to earnings, unusual expenses, or differences between internal financial statements and tax returns.

They may also examine customer concentration, the transferability of important contracts, and the extent to which the business depends on its current owner.

These questions do not necessarily indicate that the buyer has lost interest. They are part of understanding exactly what is being acquired.

However, due diligence findings can affect the buyer’s assessment of the transaction.

For example, the buyer may discover that a significant customer contract requires consent before it can be transferred. Certain expenses may not have been accounted for as initially understood.

An unidentified liability may need to be resolved before closing, or a discrepancy in financial information may require additional analysis.

Some matters can be addressed through documentation or clarification. Others may require changes to the proposed transaction.

Not every issue discovered during due diligence threatens a sale. What matters is the nature of the issue, its potential impact, and how effectively the parties address it.

If the transaction involves bank financing, the buyer still has to clear another hurdle.

The lender will typically review the business, the buyer, and the proposed transaction before issuing final approval. This may include an examination of historical financial performance, cash flow, collateral, equity contribution, and the company’s ability to support the proposed debt.

Even when a buyer has received preliminary financing indications, final approval may still depend on additional documentation and satisfaction of the lender’s closing requirements.

Financing can also take longer than anticipated. A lender may request more information or changes to the transaction structure before proceeding.

When bank financing is part of the deal, a signed LOI does not mean the funds are guaranteed.

The buyer based the initial offer on a particular understanding of the company’s financial performance, assets, liabilities, and future prospects.

If due diligence reveals information that materially changes that understanding, the buyer may request adjustments to the purchase price or other transaction terms.

For example, a buyer may discover that a significant customer contract is approaching expiration, that certain expenses were not understood correctly, or that working capital differs from what the parties expected.

Some findings can be resolved through clarification or documentation. Others may lead to further negotiation.
At the same time, the parties are working toward the definitive purchase agreement and satisfying the conditions required for closing.

This includes the legal documentation governing the transaction, as well as practical matters such as landlord or third-party consents, licenses, liens, final financial adjustments, and any required lender approvals.

Some of these matters depend on third parties and may take longer than expected.

Attorneys, accountants, lenders, and transaction advisors each play a role, but the seller and buyer remain closely involved throughout the process.

The goal is not simply to preserve every term in the LOI. It is to understand what has changed, resolve what needs to be resolved, and move the transaction toward closing on terms both parties can accept.

The main challenge at this stage is to move the transaction forward while operating the company normally.

Employees still need direction. Customers expect consistent service. Revenue and profitability must stay consistent.

A decline in performance, the loss of a key customer, or the departure of an important employee can introduce new questions into the transaction.

At the same time, the seller needs to remain responsive to due diligence requests and other closing requirements.

Protecting the transaction means continuing to run the business well while staying engaged in the sale process.