How to Write a Letter of Intent (LOI)

A letter of intent (LOI) in M&A terms refers to the declaration of the buyer to enter into a preliminary commitment with the seller. It serves as an outline of the main terms of the acquisition. Since they are presented in letter format, those who intend to buy a business need to learn how to write a LOI.

Key Takeaways

• A well-crafted letter of intent (LOI) sets the tone for a successful deal by making a strong first impression on the seller. Since selling a business is a major life decision, your LOI should be structured professionally, demonstrating sincerity and clear intent. The core content should introduce who you are, highlight your expertise, and outline your proposal’s objectives. It should also emphasize the value you bring to the deal and briefly mention any key conditions or expectations. Common uses of an LOI include mergers and acquisitions, real estate leases, and joint ventures, where clear communication is essential to moving negotiations forward.

• An LOI lets you express interest in acquiring a startup without setting final terms. Many online marketplaces provide templates, making it easy to draft and send your LOI in minutes.

• An LOI follows a formal business letter structure, including a header, salutation, body, closing, and signature. Proper formatting, spacing, and direct addressing enhance professionalism and readability for a strong first impression.

Understanding the Basic Components of an LOI

Within the standard sections of an LOI, the content should be concise and straight-to-the-point statements that cover the necessary points of the acquisition. We’ve listed down the key elements to include.

• Introduction. Write the purpose of your LOI, which is the expression of interest in acquiring a business.

• Transaction description. Include the M&A type that you’ll enter with the seller. Indicate if you’re buying the whole business or will only have authority over certain assets.

• Purchase price. Propose a price range, but also include a statement that requires further due diligence to finalize the sale price. Payment terms should also be included.

• Due diligence. A section that describes the process of the buyer examining all the revenue-producing aspects of the business as well as its legitimacy and legality to operate. The time frame of this process needs to be specified.

• Conditions. This section lists the buyer’s requirements for the deal to be finalized. For example, requiring the seller to go through complete due diligence, agreeing on a type of financing, and obtaining regulatory certifications.

• Exclusivity clause. A section that enforces the seller not to entertain other potential buyers during the process of due diligence.

• Target closing date. The time frame of the deal is specified in this section. It keeps the seller and the buyer on the same page.

• Confidentiality information. A clause that’s enforced on the buyer and seller. It keeps both parties from divulging any information stated on the LOI and other business information that could create risks when leaked.

• Non-binding clause. It’s a section specifying that the LOI isn’t similar to a legally binding contract.

Fortunately, buyers don’t have to write everything from scratch or take time to learn how to create a letter of intent. The format of LOI can be obtained online. There is an abundance of LOI examples, and all the buyer needs to do is customize the document according to their terms.

How to Compose a Letter of Intent

When starting your letter of intent, you need to create a strong impression on the seller. Remember that they’re making an important professional decision — one that could change the course of their life or will give them the opportunity to start fresh. You need to show your sincerity by structuring it similar to a formal business letter. 

The main content structure is the core of the letter of intent to buy and may contain one or multiple paragraphs. Its length will depend on the complexity of the deal.

• Who you are: Highlight the expertise, accomplishments, or credentials that make you a strong candidate or partner.

• What you’re proposing: Describe your objectives, whether it’s a business opportunity, a collaboration, or an application, and explain its significance.

• How you add value: Emphasize the strengths, insights, or assets you bring and the advantages they offer to the organization or project.

• Important details: If there are specific conditions, requirements, or expectations, briefly mention them to ensure clarity.

Common business applications of LOI:

• Mergers and acquisitions

• Real estate leases

• Joint ventures

Letter of Intent Startup Template

When approaching a startup, you don’t need to set the final sale price and terms. This is where the LOI comes in. You just need to express your interest in making the acquisition.

Online business marketplaces offer a business purchase template so that you don’t have to go through the process of learning how to write a business letter of intent. Some platforms already have it in their system, and you can prepare your LOI to be sent to your target startups in minutes.

You simply enter the purchase price, additional terms, if you require seller financing, and other conditions for you to agree to finalize the sale.

Professional Formatting Guidelines

Since an LOI is a professional letter, it will always use a layout that is used in business letters. In other words, when it comes to how to write an LOI or how to construct a letter of intent, it will always include the following parts:

• Header

• Salutation

• Body

• Closing

• Signature

How to make a letter of intent? The points below are some tips for formatting the parts mentioned above.

• Header formatting. The date and contact information are placed at the top part (or the heading) of the letter. First, write your contact info at the top-most part if you’re not using a letterhead. Place the date afterward. Below the date is the contact information of the seller (the recipient).

• Proper spacing and margins. Give your LOI a polished, professional feel with 1.15 line spacing. Others use single spacing. However, double spacing is always observed before and after the date, the space between the salutation and the body, and the space between the last paragraph and the closing. Keep it sharp by setting one-inch margins on all sides.

• Salutation. A good impression from the beginning matters. Instead of using the generic “To Whom It May Concern,” address the owner directly by writing their name.

• Introduction and body paragraphs. Use bullet points in some parts of the letter, especially when formatting conditions or terms for better readability. Do not use indentations, as this is a formal letter.

• Signature block requirements. After the closing, leave four spaces to serve as the signature block. Then, type your full name.

FAQ

Is there a way how to write a letter of intent for business purchase that clearly outlines key terms and protects both parties?

Yes. A way to do this is to clearly outline the proposed purchase price, payment structure, and any conditions that must be met before finalizing the deal. To safeguard both parties, the LOI should emphasize the importance of due diligence by specifying what information will be reviewed, the timeframe for analysis, and how the findings may impact the transaction. Additionally, confidentiality agreements help prevent sensitive business data from being shared, while an exclusivity clause can temporarily limit the seller from negotiating with other buyers, allowing the buyer to conduct a thorough assessment without external competition.

When do you send the letter of intent?

It is done when you want to enter a due diligence process with the seller. The process will only commence once the seller and the buyer are in mutual agreement.

How to begin a letter of intent​?

The introductory paragraph should always be direct. In other words, you should start by stating your intention to make the acquisition. 

How to write LOI that’s convincing?

The things we’ve covered in this post already constitute the necessary elements of an LOI. As long as you write all the terms and conditions with clarity and follow the business letter formatting, you’re good to go.

Conclusion

Successful acquisitions begin with letters of intent. Although signing a letter of intent doesn’t guarantee exclusivity or seal the deal, it does signal the buyer’s commitment and provides a clear snapshot of their position on the terms.

After both parties have signed the document, they’ll be ready for the next steps after submitting an LOI, which is the due diligence process. Through this, both parties can determine a price on which both can agree.

Do you need assistance with acquiring a business so that you can focus on what matters for your business exit? Contact WebsiteClosers.com today, and we’ll help you land a successful deal with a profitable online company.