17 Mar Tips for Reading a Letter of Intent (LOI) to Sell a Business
Ask Me Anything: The Nuts and Bolts of Selling a Business in 2025
Question:
Any tips on reading an LOI (Letter of Intent)?
Answer:
Yes. The most important thing to remember is that the team writing the Letter of Intent (LOI) consists of professionals who have likely written dozens, if not hundreds, of these documents.
When reviewing an LOI, keep these three realities in mind:
- It is a sales pitch: The document will be intentionally crafted to sound exciting and highly attractive to you, the seller.
- It protects the buyer: While it sounds great on the surface, its primary function is to aggressively cover the buyer’s short-term risks.
- The devil is in the details: Be highly skeptical of “value-add” payments. These are often structured so that you will likely never actually achieve them, even if the business performs perfectly.
A Real-World Example: We worked on a deal this fall where the LOI offered to grant the seller shares of stock. However, the payout was based on the holding company having a pre-acquisition value of $25 million—a completely unrealistic number. Always ensure the metrics tied to your payout are actually attainable.
During the 2024 Managing and Accounting Practice (MAP) Conference hosted by the Massachusetts Society of CPAs (MassCPAs), Beacon Equity Advisors presented an AMA (Ask Me Anything) to the CPA firm partners attending. We thought we would share some of their questions and our answers.