We are middle market M&A Advisors and Business Brokers here in the NY CT area. When we go through the process of selling a business, one of the most popular questions is “What do I need a Letter of Intent (LOI) for?” After all, most are non-binding, many deals go on fine without one, and it takes time and patience to go through it.
We never move forward with a buyer for a business without a letter of intent. It helps considerably to move a deal to closing for many reasons, but I would like to explain the three main reasons below.
1) You need to define the largest deal terms immediately to determine whether or not it is worthwhile to move forward. When you agree with a potential buyer interested in your business for sale on the sale price, you could still be ions away from each other regarding the value of the deal. You need to hammer out how the sale price was determined, and how the buyer will pay for it. You need to know how long that buyer would like you to stay on, and under what conditions (salary). If there is a loan, how will it be guaranteed? If part of the payment will be in an earnout, how will that be computed? There are a lot of factors in a purchase price that you want to get clarity on during these early stages, before you start opening up too much confidential information.
2) It helps you to hold the buyer accountable to the original terms. Most business sales take a minimum of three months to complete, most are longer. Due Diligence is painful, and as the documents begin to get drafted, many issues come to the surface. Many times the original deal terms become muddled and frankly even the buyer and the seller honestly forget where they started from. The Letter of Intent is a written, unmodified, declaration of the intentions of the buyer that can be used to get a deal on track, or identify how far off track it has become.
It helps to qualify the real business buyers. Any one can send you an email with a number and a couple of values in it. Many buyers who do this are fishing to see what you will accept. Most qualified buyers who are serious about buying your business will send you a formal Letter of Intent. Serious buyers will typically take the time to think through the process carefully, and put the time in to develop an LOI to start the process of the right way.
Whether you are buying a business or selling a business, we strongly recommend you invest the time to put together a proper Letter of Intent for your middle market company. It will go a long way toward making the process successful.
Ken Ducey, Jr.
Princeton Capital Strategies, Llc.
Providing Value Beyond a Typical Business Broker
Mergers & Acquisitions (M & A)is a unique business opportunity to sell their business, but because most business owners only sell a business once in their careers, they learn too late how to work with business brokers, business valuation firms, and investment banks. Princeton Capital is an M&A intermediary in the CT NY area that provides value beyond that of a typical business broker. Princeton Capital can bring more qualified buyers to a business owner in less time, because our methods come from world-class investment banks instead of typical business brokers. 
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Thanks for the info. You can find some sample letters of intent at http://www.sampleletterofintent.info.