Most sellers treat the letter of intent as a reason to celebrate. They have weighed the offers, picked a buyer and agreed on the main terms, and the deal feels done. That relief is when many sellers make the most expensive mistake of the whole transaction: they sign an LOI without noticing that several of its provisions are written to move economic risk from the buyer onto them.
The LOI is non-binding on price and most material terms. It is binding on the two things that matter most between signing and closing: the exclusivity obligation, which stops you from talking to other buyers, and the conduct of business covenant. Our guide to the seven phases of a successful business sale shows where the LOI sits in the full process.
Gotcha #1: Broad and Lengthy Exclusivity Periods
Exclusivity typically runs 45-90 days, and buyers often push for 90-120. Once it starts, the competition that produced the offer price is gone. Exclusivity itself is normal. The problem is agreeing to a longer period than the deal needs, without protection against buyer delays that stretch it well past the stated date.
When you grant exclusivity, the competitive tension behind your offer price disappears. For every extra week of it, the buyer can reopen terms and you have nowhere else to go.
For a well-prepared seller, 45-60 days is reasonable, and a buyer asking for 90 should explain why. Negotiate automatic termination if the buyer hasn't delivered a substantially complete draft purchase agreement by a set date. In our experience, sellers who have done the work in our guide on how to prepare your financials for a business sale get shorter timelines.
Gotcha #2: The Working Capital Target and Adjustment
This provision sets the net working capital you have to deliver at closing, with dollar-for-dollar adjustments for any shortfall or surplus. The usual traps are a trailing-twelve-month average with no adjustment for seasonality, a definition that quietly includes or excludes items differently than you expected, and an accounting methodology that cites GAAP without saying which elections apply.
Working capital disputes are among the most frequent and costly post-closing fights in lower middle market M&A. Resolving a disputed $300,000 adjustment can cost the two sides $150,000 or more in legal and accounting fees.
Pin down precise definitions in the LOI instead of leaving them for the purchase agreement, using the preparation covered in our guide on how to prepare your financials for a business sale, and the risk of a dispute drops substantially. Working capital is also one of the core factors in what determines your business's valuation, so getting it right before you sign affects the rest of the transaction.
Gotcha #3: Broad "No-Shop" Language That Extends to Unsolicited Approaches
A no-shop clause that bars you from actively soliciting other buyers is expected and reasonable. The problem version is a "no-talk" provision, which bars you from even responding to unsolicited approaches. If a strategic acquirer comes to you on its own with a better offer, a broad no-talk clause can stop you from acknowledging it.
A no-shop clause stops you from shopping the deal, and a no-talk clause stops you from listening. Accept the first and push back on the second. Keep the right to evaluate a materially superior unsolicited approach, with appropriate notice to the current buyer.
Our guide on finding the right buyer for your business covers strategic versus financial buyers and how a well-run process keeps buyers competing.
Gotcha #4: Earnout Language That Transfers Future Risk to the Seller
Whatever the LOI says about the earnout largely sets, and sometimes fixes outright, the final purchase agreement terms. The costliest problems are a metric defined only as "EBITDA" with no list of included or excluded adjustments; a measurement period that starts at closing instead of at the start of a fiscal year, which creates partial-period headaches; and no language on what the buyer must or must not do to keep the earnout achievable.
If you grant exclusivity on vague earnout terms, expect each ambiguity to get resolved in the buyer's favor during purchase agreement negotiation, when you have no other buyer to point to. Our guide on what an earnout is lists the protective language to insist on before granting exclusivity, and our guide on what EBITDA is explains why a loose EBITDA reference in an LOI tends to end in a dispute.
Gotcha #5: The Material Adverse Change Termination Right
A MAC provision has a legitimate purpose: it protects the buyer if the business really deteriorates. The bad version is drafted so broadly that ordinary swings could be argued to qualify, such as a soft quarter, a key employee leaving, or a customer trimming order volume.
A buyer with cold feet, whether over the market or financing, may hunt for a MAC argument to walk away or force a price cut without admitting the real reason. The more precisely the MAC is defined, the harder that is to do, so push for specific language.
Sellers with concentrated revenue are more exposed, since one large customer cutting orders could support a broad MAC argument. That is another reason to deal with the risks in our post on the five most common deal-killers before going to market.
Where Sellers Lose Value After the LOI
Almost every problem above can be avoided with experienced representation during the LOI negotiation. The LOI stage feels like the end of negotiating because the headline price is settled. In practice, it is where sellers most often give value away. Exclusivity has been granted and the other buyers have been sent home. Your leverage has peaked, and it does not come back unless the buyer's bad faith is serious enough to justify termination.
If you go to market without a clear view of normalized EBITDA, your working capital baseline and your deal structure priorities (including the asset vs. stock decision covered in our guide on asset sale vs. stock sale tax implications), you will be negotiating blind at the point where you most need to see clearly. Our post on the cost of waiting to sell your business explains why preparation time is the most valuable time in the process, and our post on how to know when it's the right time to sell helps you judge whether you are going into that window prepared. Our guide on the quality of earnings report shows how the LOI's definitions become the yardsticks for the buyer's QoE review.
Have an experienced advisor read every LOI provision before you sign.