What Happens After the Letter of Intent Is Signed?
- Mark Hartmann, MBA
- Aug 12
- 10 min read
Most business owners treat the signed LOI as the finish line. Buyers treat it as the starting gun. Here is what happens in the 60 to 120 days that decide what you actually get paid.
You've been through months of preparation. A confidential information memorandum, buyer calls, management meetings, a few offers you passed on and one you didn't. Now there's a signed letter of intent (LOI) on your desk with a number on it that makes thirty years of work feel worth it.
Take the evening. You earned it.
The LOI is a real milestone, and owners are right to treat it that way. It's also the moment the process stops being a competition for your business and starts being a deeper dive verification of it. The deals that get repriced, dragged out, or abandoned almost never fall apart during the offer stage. They fall apart in the stretch that comes after.
Here's what happens between signing and closing.
Exclusivity Is the Most Expensive Thing in the Document
The LOI is a mostly non-binding terms sheet. Price, structure, and timeline are all subject to what diligence turns up. But a handful of provisions are binding, and the most consequential is the no-shop, also called exclusivity. It restricts you from soliciting or negotiating with any other buyer while the LOI is in effect.
That clause is fair. A buyer is about to spend real money on accountants, attorneys, and consultants, and they're entitled to know you won't use their offer to shop for a better one. But understand the trade. Up until the moment you sign, you had a market. The day after, you have one buyer and a running clock.
Everything that happens next happens under that condition.
So negotiate the exclusivity terms with the same attention you gave the price. Keep the initial window tight. Watch for automatic renewals and strike them. Tie extensions to demonstrated progress rather than granting them on request, and trim thirty-day extensions down to fifteen. In my book, Sweat Equity Payday, I write about a deal where 42 companies came to me after the LOI was signed, still wanting to buy the business. That buyer knew the seller had options, and it kept them honest.
What to do now: Have your transaction attorney review the LOI before you sign it, with particular attention to exclusivity length, renewal mechanics, and the outside closing date. |
Four Workstreams Start at Once, and They Don't Wait for Each Other
Owners tend to picture diligence as one long document request. In practice, four separate processes run in parallel from the day the LOI is signed, each with its own team and its own timeline.
Financial diligence. The buyer's accountants examine your books, and above a certain deal size they'll commission a quality of earnings (QoE) report. A QoE team rebuilds your EBITDA from scratch, testing revenue recognition, cutoffs, accrual policies, inventory valuation, customer concentration, and gross margin by line. The report either supports your price or quietly takes it apart.
Legal diligence. Corporate records, contracts, leases, litigation history, employment agreements, intellectual property, insurance, permits, and licensing. The buyer's attorneys are looking for anything that doesn't transfer cleanly, especially change-of-control and assignability provisions in your customer and vendor agreements.
Operational and industry diligence. Depending on your business, this can include environmental site assessments, equipment inspections, IT and cybersecurity review, safety records, regulatory compliance, and customer reference calls. In manufacturing and industrial deals, this is often the workstream that takes the longest.
The definitive agreement. While diligence is running, attorneys are drafting the purchase agreement, the disclosure schedules, employment and transition agreements, escrow documents, and any seller note or earnout paperwork.
Add the buyer's financing to that list. If there's a lender or an investment committee involved, they're running their own approval process on their own schedule, and it doesn't always align with everyone else's.
Four workstreams mean four sets of requests landing on you at the same time. This is why preparation before the LOI matters so much. The seller who has to assemble documents from scratch under exclusivity is the seller whose deal takes six months.
Every Claim You've Made Will Be Verified
When I walk a first-time seller into this phase, I give them my standard line: "In God we trust; everyone else, prepare for due diligence."
It isn't personal. Every number on your financials, every claim in the CIM, every contract you referenced - the buyer will want it supported. That's exactly what you'd do if you were the one writing the check. When sellers get frustrated, I ask them to flip the perspective: if you were buying this business, what would you want to see?
The harder part is emotional. Diligence is the phase where it feels like every decision you've made over twenty or thirty years is being second-guessed by someone who wasn't there. I call that head trash. The buyer doesn't think you're a bad operator. They're looking at the business through the lens of how they'll run it going forward. They may change practices, reorganize the team, adjust the product mix. None of that means what you built wasn't successful. It means they're shaping it to fit their plan.
If you take it personally, you'll spend four months exhausted and defensive at exactly the point in the process where you need to be sharp.
The Business Still Has to Perform While You're Distracted
This is the one owners underestimate most.
You're now responding to diligence requests, sitting on calls with attorneys, and thinking about life after closing.
Meanwhile, your monthly numbers keep getting reported to a buyer who is watching them closely, because the price they offered was based on a trajectory they expect to continue.
Miss a month, and the buyer has a legitimate argument that the business isn't performing the way it did when they made the offer. That argument is hard to answer, because it's usually true.
Unfortunately, outperforming during diligence doesn't work in reverse. A blowout quarter rarely raises the headline price. What it does buy you is leverage on other terms: earnout structure, escrow size, transition length, seller note terms. Worth having, but it isn't symmetrical, and you should plan around that.
What to do now: Decide before the LOI is signed who is running the diligence response and who is running the company. When those are the same person, the numbers usually slip. |
The Definitive Agreement Is Where Your Real Terms Get Written
The LOI gave you a price. The purchase agreement decides how much of it you keep.
Representations and warranties are the promises you make about the business: that the financials are accurate, the contracts are in order, taxes are paid, there's no undisclosed litigation.
Indemnification determines who pays if a promise turns out to be wrong, and for how long. Survival periods, caps, baskets, escrow amounts, and holdback terms all decide how much of your purchase price is genuinely yours on closing day and how much stays at risk afterward.
Then there's the working capital peg, which is the amount of working capital the buyer expects at close to run the business through one cash cycle. It gets set off a trailing average of your balance sheet. Come in below it, and the price drops dollar for dollar. This number is often finalized in the last few weeks, when your leverage is at its lowest, and your patience is thinnest.
Along the way, expect small asks. An extra representation here, a slightly longer survival period there, a modest increase to the escrow. Individually, each one looks like housekeeping. Stacked up, they're called post-LOI nibbles, and they can quietly move real money. My rule is that nothing is free. If a buyer wants an additional warranty, fine, and we'll adjust something else in your favor.
Structure Is What Gets a Deal Across the Line
The size of the transaction sets the intensity of diligence, but one thing holds across every deal I've worked on: you need rhythm.
Weekly meetings between the principals are critical to lower-middle-market transactions. One week it's a legal issue, and the attorneys need to be at the table. The next it's environmental, so the environmental consultants weigh in. Then it's a tax, HR, or lender question. Without a standing cadence, the process drifts and small items compound into large ones.
Time is the enemy here. Some buyers understand that and will let a deal drag deliberately, hoping fatigue does the negotiating for them. A recurring meeting on the calendar, an agenda, and an advisor whose job is keeping the ball moving are the practical defenses.
You should also expect surprises, because they're part of the process rather than an exception to it. I've watched a deal where the contracts were 99 percent done, and closing was five days out. Then a working capital adjustment came in with a variance the sellers couldn't stomach.
They walked.
When something like that surfaces, the advisors' job is to coach both sides on whether closing is still what everyone wants, and what it takes to get there.
Diligence Rewards Preparation, Not Effort
The owners who close cleanly prepare before the LOI. Diligence becomes retrieval instead of reconstruction. They keep a clean, organized data room, which means that when a buyer raises something as new, they can point to the date it was disclosed. They protect the exclusivity terms on the front end. They keep the business performing. They let their advisors run the process instead of trying to negotiate the deal themselves at 11:00 at night.
And they go in understanding that the LOI is permission to begin the hardest part.
At HartmannRhodes, I help owners of lower-middle-market companies prepare for this phase long before they reach it, and manage it when they do. That means clean financials well before you go to market and an LOI structured so the clock works for you. Once diligence starts, it means giving the buyer what they need, nothing extra, and calling out gamesmanship when it shows up.
You spent decades building your business. The four months after the LOI shouldn't determine whether you got paid for it.
You only sell your business once. Make it count.
If you're heading toward a sale and want to understand what the diligence phase will actually ask of you, schedule a confidential discovery conversation.
Common Questions About the Period Between LOI and Closing1) What happens after you sign a letter of intent to sell a business? Signing the LOI moves the deal from negotiation into verification. The buyer initiates due diligence, requests documents, and often commissions a quality-of-earnings review. Attorneys begin drafting the purchase agreement, disclosure schedules, and ancillary documents. Lenders or investment committees run their own approval process. Meanwhile, you're still running the company. Most of what determines your final price and terms gets decided during this stretch, not during the offer negotiation that preceded it. 2) How long does due diligence take after an LOI? In lower-middle-market transactions, 60 to 120 days from the signed LOI to closing is a reasonable expectation, and the LOI usually sets an outside date. Deals with real estate, environmental exposure, regulatory licensing, multiple entities, or SBA financing tend to run longer. Extensions are common and often reasonable. What matters is whether the extension comes with a clear reason and a revised schedule, or whether the clock's just being allowed to run. 3) Is a letter of intent binding? Most of an LOI isn't binding, including price and structure. Specific provisions typically are, and those are the ones that matter: exclusivity or no-shop, confidentiality, expense allocation, and sometimes governing law and dispute resolution. Have a transaction attorney review the LOI before you sign it. The document sets the exclusivity window, timeline, and conditions you'll operate under for the rest of the deal. 4) What is a no-shop or exclusivity clause? A no-shop clause restricts you from soliciting or negotiating with other buyers while the LOI is in effect. It's how a buyer protects the money they're about to spend on diligence, and it's reasonable to grant. The terms are negotiable. Keep the initial window tight, avoid automatic renewals, tie any extension to demonstrated progress, and shorten extension lengths. Exclusivity is the single largest transfer of leverage in the transaction. 5) What is a quality of earnings report, and who pays for it? A quality of earnings report is an independent financial review that rebuilds your EBITDA from the ground up, testing revenue recognition, cutoffs, accruals, inventory valuation, add-backs, and margin by line of business. Buy-side QoE is commissioned and paid for by the buyer. Sellers can also commission their own sell-side QoE before going to market, which surfaces problems on their timeline rather than during exclusivity, when their leverage is lowest. 6) What is a working capital peg, and when is it set? The peg is the level of working capital the buyer expects to find in the business on the closing date, usually calculated from a trailing average of your balance sheet. Deliver less than the peg and the purchase price drops dollar for dollar. Deliver more and you get a bump. The peg's often negotiated late in the process, which is why stale inventory, uncollectible receivables, and misclassified prepaid expenses should be cleaned up long before diligence begins. 7) Can a buyer lower the price after the LOI is signed? Yes. A price reduction after the LOI is called a retrade, and it can be legitimate or tactical. A legitimate retrade follows a real discovery: earnings that were overstated, a contract that isn't assignable, a liability nobody disclosed. A tactical retrade recycles something the buyer already knew. Your defense in both cases is preparation, documentation, and a data room that proves what was disclosed and when. |
Mark Hartmann is a former business owner turned M&A advisor—and the author of Sweat Equity Payday—who knows firsthand what it takes to build, grow, and sell a successful company. A three-time Inc. 5000 CEO honoree, he led his own eight-figure sale and now helps business owners sell companies worth $1M to $25M. Mark understands that selling a business is personal, not just financial. That’s why he works closely with owners to maximize value, protect their legacy, and transition on their terms.
He holds an MBA from Eastern University and a master's degree in organizational change management from St. Elizabeth University, as well as Certified M&A Professional (CM&AP), Certified Business Intermediary (CBI), Certified Exit Planning Advisor (CEPA), and Certified Value Builder (CVB) credentials.
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HartmannRhodes advises owners of companies typically valued between $1–$25 million. If you’d like a structured pre-sale valuation review and a readiness roadmap, we can walk you through the process and tailor it to your timeline and goals. Contact us today!