What Happens After You Sign a Letter of Intent?
Signing a letter of intent (LOI) feels like the finish line. It's not. The LOI marks the beginning of the most intensive — and most dangerous — phase of the sale process. Understanding what comes next, and what the risks are, is the difference between closing successfully and watching the deal collapse after months of work.
What the LOI Actually Does
An LOI is a non-binding agreement that establishes the key terms both parties have agreed to in principle — purchase price, deal structure, exclusivity period, and the timeline for closing. It signals serious intent but does not obligate either party to close.
The one binding provision that matters immediately: the exclusivity clause. Once you sign an LOI, you typically agree to stop talking to other buyers for 30–90 days. This is the buyer's window to conduct due diligence and finalize the purchase agreement. During this window, your negotiating leverage shifts significantly — which is why what you agreed to in the LOI matters so much.
Phase 1: Due Diligence (30–90 Days)
Due diligence is the buyer's systematic verification of everything you've represented about your business. They'll review financial statements, tax returns, contracts, leases, customer concentration, employee agreements, intellectual property, regulatory compliance, and operational documentation.
Your job during due diligence: respond to requests completely and promptly. Delays and incomplete responses create doubt. Doubt creates renegotiation pressure or deal withdrawal.
The most important thing you can do before signing an LOI is to have your documentation ready. Sellers who scramble to find records during due diligence expose themselves to the risk that buyers will find something — or assume something — that gives them leverage to reprice the deal.
Phase 2: Purchase Agreement Negotiation
While due diligence is underway, attorneys on both sides begin drafting and negotiating the purchase agreement — the legally binding document that governs the transaction. This document is long, detailed, and consequential.
Pay particular attention to: representations and warranties (statements about your business that you're legally attesting to), indemnification provisions (who's responsible if something goes wrong after closing), escrow holdbacks (money withheld from your proceeds to cover potential claims), and non-compete terms.
The purchase agreement often runs 40–80 pages. Every clause matters. This is not the place to skip legal counsel.
Phase 3: Renegotiation Risk
If due diligence surfaces issues — financial discrepancies, customer concentration concerns, legal exposure, deferred maintenance — the buyer will use them to renegotiate. This is normal and expected. How much renegotiation happens, and how it affects your final proceeds, depends on how significant the issues are and how well-prepared you were going in.
Sellers who are surprised by what due diligence finds are in the worst position. Sellers who know their vulnerabilities and have addressed them — or can explain them — negotiate from a stronger position.
Phase 4: Closing
Once due diligence is complete and the purchase agreement is finalized, the parties schedule a closing. Funds are transferred, documents are signed, and ownership changes hands. Post-closing, you may be obligated to assist with a transition period — typically 30–90 days — as specified in the purchase agreement.
Frequently Asked Questions
Q: What happens after you sign a letter of intent to sell your business?
After signing an LOI, the buyer enters an exclusivity period and begins formal due diligence — reviewing your financial records, legal documents, contracts, and operations. Simultaneously, attorneys negotiate the purchase agreement. This phase typically takes 60–120 days from LOI to closing.
Q: Can a deal fall apart after the LOI is signed?
Yes. LOIs are non-binding, and deals fall apart after LOI more often than sellers expect. The most common reasons: issues discovered during due diligence, inability to agree on purchase agreement terms, financing failures on the buyer's side, or significant changes in business performance during the exclusivity period.
Q: Can the buyer lower their offer after signing the LOI?
Yes. If due diligence surfaces issues that weren't reflected in the original offer, buyers will use them to renegotiate. This is why preparation matters — sellers who walk into due diligence with clean, organized documentation have far less renegotiation exposure.
Q: How long is the exclusivity period in a typical LOI?
Most exclusivity periods run 45–90 days. During this window you cannot negotiate with other buyers, which shifts leverage to the buyer. Shorter exclusivity periods are generally better for sellers — they reduce the window during which the buyer can exert pressure.