Letters of Intent vs. Indications of Interest: What Business Sellers Need to Know
- Mark Hartmann
- 4 days ago
- 7 min read
If you’re a business owner preparing to sell, one of the first exciting moments in the process is when you get an offer—or at least, what looks like an offer.
Maybe you hear the term “IOI” or receive something called a “Letter of Intent” from a potential buyer. And if you’re like most sellers I work with, your immediate question is:
“What’s the difference between an Indication of Interest and a Letter of Intent—and how seriously should I take either one?”
Great question - and an important one.
As an M&A advisor who helps owners of companies worth $1M to $25M sell their businesses, I’ve guided many clients through the stages of buyer interest, offers, negotiation, and closing. The distinction between Indications of Interest (IOIs) and Letters of Intent (LOIs) is often misunderstood, but it can have a significant impact on your exit strategy.
In this post, I’ll walk you through:
• What IOIs and LOIs are
• How they’re used in the business sale process
• What each one typically includes
• How they differ—and why that matters
• What you should do when you receive either
Let’s demystify these two crucial documents and help you move forward with clarity and confidence.
What Is an Indication of Interest (IOI)?
An Indication of Interest (IOI) is a preliminary, non-binding letter from a potential buyer that says, essentially:
“We’re interested in buying your business, and here’s roughly what we’d be willing to pay—subject to more information.”
IOIs are typically used earlier in the sale process—often before the buyer has access to detailed financials or confidential information. They’re a way for buyers to signal intent and start a conversation.
A Typical IOI Includes:
• A range of proposed purchase prices (e.g., $8M–$10M)
• The buyer’s background (individual, private equity, strategic, etc.)
• General deal structure ideas (cash, earn-out, seller financing)
• Key assumptions (based on revenue, EBITDA, customer base, etc.)
• An outline of next steps, such as a request for due diligence access
An IOI is not a firm offer. It’s more like a buyer saying, “If everything checks out the way we hope, we’d be interested in acquiring your business under these general terms.”
What Is a Letter of Intent (LOI)?
A Letter of Intent (LOI) is a more formal and detailed document that comes after a buyer has had some level of access to your financials and business operations.
The LOI outlines the specific terms under which the buyer proposes to acquire your company. It’s often the last step before exclusivity is granted and due diligence begins in earnest.
A Typical LOI Includes:
• A definitive purchase price
• Detailed deal structure (cash, earn-out, rollover equity, etc.)
• Proposed closing timeline
• Expectations for working capital adjustments
• Requirements for seller involvement post-sale
• A confidentiality clause
• A “no shop” or exclusivity provision (usually 60–90 days)
• Disclaimers noting which parts are binding vs. non-binding
While the LOI itself is usually non-binding (except for certain provisions like exclusivity, confidentiality, and access), it’s a major milestone in the deal.
Once an LOI is signed, both parties are signaling serious intent to get a deal done.
Key Differences Between IOIs and LOIs
Here’s a breakdown of the major differences between an Indication of Interest and a Letter of Intent:
Feature | Indication of Interest (IOI) | Letter of Intent (LOI) |
Purpose | Express preliminary interest | Propose specific terms for the deal |
Timing | Early in the process | Later in the process, before diligence |
Price | Range or estimate | Firm (specific) price |
Structure | General ideas | Detailed breakdown |
Access to Info | Based on limited information | Based on partial due diligence |
Binding? | Non-binding | Mostly non-binding, but often includes binding exclusivity and confidentiality clauses |
Triggers Exclusivity? | No | Yes—typically 60–90 days |
Commitment Level | Low to moderate | High—serious buyer engagement |
Think of it this way: IOIs are dating. LOIs are engagement.
Why Buyers Use IOIs
From the buyer’s perspective, an IOI is a way to:
• Express interest without overcommitting
• Narrow down the pool of potential deals
• Start negotiations while still doing diligence
• Maintain flexibility around price and structure
For buyers looking at multiple opportunities, IOIs help filter which deals are worth pursuing in more depth.
Some private equity firms or strategic buyers may issue multiple IOIs to see which opportunities gain traction, then focus their time and resources on the most promising.
Why LOIs Matter More
While IOIs are helpful signals, LOIs are where things get real.
Once an LOI is signed:
• You enter exclusive negotiations
• The buyer kicks off formal due diligence
• Your other options are paused
• You begin preparing for the legal work of closing
That’s why it’s critical to negotiate LOI terms carefully—even though they’re non-binding, they set the tone and expectations for the rest of the deal.
Many of the final purchase agreement terms stem directly from the LOI. It’s much easier to negotiate before exclusivity begins.
When You Might Receive an IOI
If you’re working with an M&A advisor (like me), we often go to market with a Confidential Information Memorandum (CIM) and ask for IOIs in return.
We’ll use those IOIs to:
• Assess buyer interest and alignment
• Create competitive tension
• Narrow the field to a shortlist of serious buyers
It’s common to receive several IOIs, especially if your business is well-prepared, profitable, and in a desirable industry.
Once we’ve selected the most promising buyer(s), we invite them to submit a formal LOI.
What Should You Do If You Receive an IOI?
If you’re not yet working with an advisor and you receive an IOI directly, here’s what I recommend:
1. Don’t treat it like a signed offer. It’s an expression of interest, not a binding commitment.
2. Assess buyer credibility. Who are they? Have they done deals before? Are they serious?
3. Clarify their assumptions. What are they basing their price range on? Do they have enough information to be accurate?
4. Avoid giving exclusivity. Never agree to exclusivity at the IOI stage—it’s too early.
5. Bring in an advisor. An experienced M&A professional can help you vet the buyer, extract better terms, and position your business for multiple offers.
What Should You Do If You Receive an LOI?
Now we’re in more serious territory.
When you receive an LOI, it’s time to:
1. Review it with your M&A advisor and attorney. Even if it’s non-binding, every line matters.
2. Evaluate total deal structure—not just price. Is there an earn-out? Rollover equity? Seller financing? What are the risks?
3. Negotiate key terms before signing. You have the most leverage before you grant exclusivity. Once you sign, your options narrow.
4. Understand the exclusivity period. Make sure it has a defined end date and specific expectations from the buyer.
5. Start preparing for due diligence. After the LOI is signed, the real work begins.
Common Mistakes Business Owners Make with IOIs and LOIs
Having advised many owners through this process, I’ve seen a few missteps that can cause real problems:
❌ Mistake #1: Confusing the Two
Some sellers treat an IOI like a done deal, or treat an LOI like a casual note. Knowing the difference is critical.
❌ Mistake #2: Signing an LOI Without Negotiating
Sellers often think “we’ll work out the details later.” But once exclusivity is in place, you lose leverage. Negotiate now.
❌ Mistake #3: Focusing Only on Price
Two letters of intent (LOIs) with the exact purchase price can have wildly different structures. Look at cash at close, earn-outs, terms, tax treatment, and post-sale commitments.
❌ Mistake #4: Granting Exclusivity Too Early
Never agree to exclusivity at the IOI stage—and be cautious even at the LOI stage unless the buyer is serious and committed.
A Real-World Example
Let’s call her Maria. She received two offers:
• Buyer A sent an IOI with a $12M–$14M price range. They were a private equity firm still doing initial diligence.
• Buyer B sent an LOI offering $11.5M, with 90% cash at close and no earn-out. They had already reviewed detailed financials.
At first, Maria was tempted by Buyer A’s higher number. However, it wasn’t a genuine offer yet, and it had many assumptions.
After comparing the two, we chose Buyer B. We negotiated a few key LOI terms before signing, locked in a smooth diligence period, and ultimately closed the deal at $11.7M—all cash.
Final Thoughts: Know Where You Stand in the Process
Selling your business isn’t just about getting the best price—it’s about understanding each stage, managing risk, and keeping control of the process.
IOIs and LOIs are both essential tools, but they serve different purposes. Knowing how to read, negotiate, and act on them is key to a successful exit.
As an M&A advisor, I work closely with business owners to:
• Create a competitive sales process
• Evaluate buyer interest at each stage
• Negotiate favorable LOI terms
• Guide you through due diligence and closing
Because you’ve spent years—maybe decades—building your business. When it’s time to sell, you deserve expert guidance to get it right.
Thinking about selling your business? Let’s talk.
Schedule a confidential conversation, and I’ll help you understand how IOIs and LOIs fit into a smart, strategic exit—on your terms.
Blog: Letters of Intent vs. Indications of Interest: What Business Sellers Need to Know
Mark Hartmann is a former business owner turned M&A advisor who knows firsthand what it takes to build, grow, and sell a successful company. A three-time Inc. 5000 CEO, Mark did just that before navigating its eight-figure sale—giving him a rare perspective that sets him apart from most brokers. Today, he helps owners of companies valued between $1M and $25M plan and execute smooth, profitable exits.
Mark understands that selling a business isn’t just a financial decision—it’s personal. That’s why he works closely with owners to protect their legacy, maximize value, and make the transition on their terms. He holds an MBA from Eastern University, a Master’s Degree in Organizational Change Management from St. Elizabeth University, and a Graduate Certificate in Executive Coaching from Columbia University. Some of his professional credentials include Certified Mergers & Acquisitions Professional (CM&AP), Certified Business Intermediary (CBI), Certified Exit Planning Advisor (CEPA), and Certified Value Builder (CVB).
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