Offer to Purchase vs. Letter of Intent (LOI)

You'll hear a lot about Letters of Intent. There's nothing wrong with an LOI. Many respected advisors use them and business schools teach them. But we've found a process that serves serious buyers and sellers better: the Offer to Purchase.

What Each Document Communicates

By the time you're ready to make an offer, you've done your homework. You've reviewed the financial package, analyzed the cash flow, spoken with the broker, met the seller, asked your questions, and positioned yourself with the bank. You've moved past interest. You're prepared to buy, and the document you use should reflect that.

A Letter of Intent communicates: "I'm interested, but I'd like a lot more information before I'm willing to commit." An Offer to Purchase communicates something far stronger: "Based on everything I've reviewed, I intend to purchase this business, provided financing, underwriting, and due diligence confirm what has been represented."

The seller doesn't need another person who's thinking about buying. They're looking for someone who's prepared to become the next owner.

Why a Stronger Signal Wins Deals

Most quality businesses receive hundreds of buyer inquiries. An Offer to Purchase tells the seller you're serious, tells the broker you're prepared, and tells the bank you're committed to the process. In a crowded field of "maybe" buyers, the prepared buyer who signals real intent stands out. Serious sellers appreciate serious buyers.

You Keep All of Your Protections

An Offer to Purchase does not eliminate your protections. If underwriting uncovers material issues, if due diligence reveals significant problems, or if the financial information isn't accurate, you retain the ability to terminate the transaction. No one is asking you to buy a bad business.

The Offer to Purchase says that if the business proves to be what it has been represented to be, you're ready to move forward. That's the mindset of an owner, not a shopper. It moves serious buyers toward ownership instead of encouraging endless analysis.

Don't Become a Professional Thinker

One of the biggest mistakes buyers make is becoming professional thinkers: continuing to ask questions, request documents, and analyze while another qualified buyer purchases the business. There comes a point where you have enough information. You either move forward or you move on. There isn't a third option.

Professional buyers make decisions. As the Peterson Principle goes: great acquisitions aren't won by the fastest buyer. They're won by the most prepared buyer.

Common Questions

Is a Letter of Intent Binding?

For the most part, no. An LOI is a non-binding framework that outlines proposed terms before the definitive purchase agreement. A few provisions are binding, in most cases confidentiality and, when included, an exclusivity period. The binding commitment to buy comes later, in the purchase agreement, and remains subject to your contingencies.

What's the Difference Between an LOI and an Offer to Purchase?

An LOI is non-binding for the most part and sets the stage for negotiation. An Offer to Purchase is a more complete, actionable document that moves the deal forward with more commitment. A well-built Offer to Purchase keeps every buyer protection intact through the same contingencies, so being more decisive doesn't mean being less protected.

What Contingencies Should I Include in My Offer?

At minimum: satisfactory due diligence, financing approval, clean and transferable documentation, lease assignment if location matters, and an acceptable final purchase agreement. These contingencies are your most important protection. They let you renegotiate or walk away without penalty if what you verify doesn't match what you were told.

Should the Deal Be an Asset Sale or a Stock Sale?

Most small business acquisitions are structured as asset sales, where you buy specific assets and in most cases avoid inheriting the seller's past liabilities. Stock sales transfer the entire entity, including liabilities, and sellers tend to prefer them for tax reasons. The right structure depends on tax and liability factors, so your attorney and accountant should advise on it.

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