There is a moment in a sale when a buyer puts their intentions in writing. It arrives as a letter of intent, sometimes called heads of terms or a term sheet, and it feels like a triumph. Someone wants to buy your business, at a price, on terms, in black and white. Many owners relax at this point, believing the hard part is done. In truth, signing a letter of intent is one of the most consequential moments in the whole process, and it deserves far more care than the celebration it usually receives.
What a letter of intent is
A letter of intent sets out the main terms on which a buyer proposes to acquire your business. It typically covers the price, or a way of calculating it, the broad structure of the deal, the conditions that must be met, and a timetable. It is the document that turns a conversation into a plan, and it forms the framework for everything that follows.
Most of a letter of intent is not legally binding. The price and terms it contains are usually subject to due diligence and final contracts, which means they can still change. But this is exactly where owners misread the document. Just because most of it is non binding does not mean it does not matter. On the contrary, it sets the anchor for the entire deal.
Why it shifts the balance of power
The moment you sign a letter of intent, something changes. Almost every letter of intent includes an exclusivity period, during which you agree not to talk to other buyers. This is reasonable from the buyer's point of view, since they are about to spend time and money on due diligence. But it also hands them a quieter advantage. Once you are locked into exclusivity, you have stepped away from the competitive tension that gave you leverage, and the buyer knows it.
From here, if the buyer later tries to chip the price down during due diligence, your options are narrower than they were. You cannot simply turn to another bidder, because you agreed not to. This is why the terms you accept in the letter of intent, and the length and conditions of the exclusivity you grant, matter so much. They shape the balance of power for the rest of the deal.
What to watch for
Several things in a letter of intent deserve close attention. The price is obvious, but pay equal attention to how it is defined and what could reduce it later. Watch the exclusivity period, and resist granting a longer lock in than the buyer genuinely needs. Look carefully at the conditions attached to the deal, since a long list of buyer friendly conditions gives them many exits and you few. Understand which parts are binding, because exclusivity, confidentiality, and cost arrangements usually are, even when the price is not.
It is also worth ensuring that the important commercial points are settled in the letter of intent rather than left vague. Ambiguity that feels harmless now becomes a battleground later, when the balance of power has already tilted toward the buyer.
The practical lesson
A letter of intent is a genuine milestone, and it is right to feel encouraged when one arrives. But it is not the finish line, and it is not a formality. It is the moment when the shape of the deal is set and your leverage begins to change. Owners who treat it with the seriousness it deserves, and who take advice before signing, protect themselves in every negotiation that follows. Owners who sign it in relief often discover, too late, what they gave away.