The Letter of Intent on a $10 Million Sale: Price, Exclusivity, and the Terms That Get Missed

A letter of intent on a $10 million sale is the page that stops the market. The price in that letter is usually a draft. The exclusivity is usually real. Owners who sign because the headline matches a number they wanted give away the right to talk to anyone else before the cash, the debt, the working-capital peg, and the financing condition are written down.

The short answer: treat the letter as two documents stapled together. The business terms — price, structure, a seller note, an earn-out, rollover — are often non-binding. They describe what the parties intend, and they can move in diligence. Exclusivity, confidentiality, and sometimes a clause about expenses are often binding the day you sign. Buyers commonly ask for 60 to 90 days of exclusivity. That is a request, not a rule. Match the clock to the work: a quality-of-earnings review, a financing package, and a purchase agreement. Do not hand over a long freeze for a price that is still "subject to diligence" with a peg "to be agreed."

At Bridge Point Business Brokers, we read the letter before an owner stops a second conversation. If the offer arrived unsolicited, start with what to do before you reply. If you want the earnings behind the price, that page is what multiple a $10 million business sells for. What the headline becomes in cash is what you actually keep.

This article is not legal advice. Which sentences bind you, how exclusivity is enforced, and what a financing condition lets the buyer do are questions for your counsel on your draft. Have that lawyer in the draft before you sign, not the week the purchase agreement arrives.

What the Letter Is For

The letter of intent, sometimes called an LOI or a term sheet, is the outline the purchase agreement is supposed to follow. It lets both sides spend money on diligence with a shared picture of price and structure. It is not the sale. No stock has moved. No wire has been sent. A buyer who "has an LOI" has a document. You have a company you still own, and, if you signed exclusivity, a period in which you agreed not to shop it.

On a $10 million sale the letter does three jobs.

It states the price and what that price includes. Cash-free and debt-free, or not. The building, or not. A normal level of working capital, or a blank.

It states how the buyer will pay. Cash at closing, a seller note, an earn-out, rollover equity. A single SBA 7(a) loan stops at $5 million, so the rest of a $10 million check is equity, another lender, and often you. If the letter does not say where the other $5 million comes from, the price is a wish. The map is how buyers finance a $10 million acquisition when SBA cannot cover the check.

It states whether you may keep talking to other buyers, and for how long. That is the part that changes your leverage. Until you sign it, a second buyer is a reason to improve the first letter. After you sign it, a second buyer is often a breach.

Binding and Non-Binding, on the Same Page

Most letters say the deal terms are non-binding and then list a few sections that are binding. Read that sentence twice. Owners hear "non-binding" and think they can walk whenever the price moves. Buyers hear "exclusivity" and treat the company as theirs for the term.

Typically non-binding, until the purchase agreement is signed:

• The purchase price and the earnings it sits on
• Stock sale versus asset sale
• The mix of cash, note, earn-out, and rollover
• Employment or consulting after closing
• A non-compete, once the definitive agreement exists
• The working-capital target, if it is still "to be agreed"

Often binding as soon as you sign:

• Exclusivity, also called a no-shop
• Confidentiality, and who inside the company may be told
• Who pays which expenses if the deal dies
• Governing law and how a dispute about the letter itself is handled
• Sometimes a deposit, and the rules for giving it back

"Often" is not "always." Your draft controls. If the letter does not say which paragraphs bind, do not guess. Ask counsel to mark them before you sign. A buyer who refuses to mark them is telling you the whole letter is a negotiation about leverage, not a gift of a price.

Confidentiality belongs in this list even when you already signed a separate nondisclosure agreement. The letter should say the buyer may not contact employees, customers, or your landlord without your written yes. At $10 million, one call to a key customer "just to get comfortable" can do more damage than a lower price. The process for staying quiet is the confidential sale guide.

The Price Is Not Finished Until These Lines Are

A headline of $10 million is the start of the price, not the end. These are the lines that change it. If any of them says "to be agreed in the definitive agreement," you have not agreed to $10 million. You have agreed to negotiate $10 million while you are exclusive.

Cash-free, debt-free

Most letters at this size quote enterprise value on a cash-free, debt-free basis. You deliver the company without the buyer assuming your bank debt. You do not automatically keep every dollar in the operating account. Debt, unpaid taxes, and debt-like items — a swollen customer deposit, deferred revenue already spent, unpaid bonuses — come out of the price. Write the categories in the letter. "Debt-free" without a list becomes a fight in the purchase agreement, when you can no longer invite another buyer in.

The working-capital peg

The buyer expects a normal level of receivables, inventory, and payables left behind. That normal level is the peg. Deliver less at closing, and the price drops. Deliver more, and you may be paid for the excess. A letter that says the peg will be "consistent with past practice" has postponed the argument. Past practice is a number. Ask for the method: which accounts, which months, and whether cash is in or out. Owners who pull cash out in the last ninety days and call it a distribution meet the peg on closing day.

What is in the $10 million

The operating company, the building, the vehicles, and a related entity that owns the equipment are four different assets. If the building is in the price, say so, and say whether it is valued inside the business multiple or beside it. If you will keep the building and lease it, the rent is a separate negotiation, and the $10 million is the company only. Mixing them is how a business multiple and a real estate number get added into a headline neither side meant.

Stock or assets

The letter should say whether the buyer is purchasing stock or assets. You often prefer stock, so more of the gain is capital gain. The buyer often prefers assets, so they can step up the basis. The price moves with that choice. Leaving it blank means the buyer will write the cheaper version for them into the first draft of the agreement, and you will be exclusive while you argue. The longer version is stock versus asset sale.

Cash, note, earn-out, rollover

Split the $10 million into cash at closing and everything else. A seller note is a loan you make to the buyer, usually behind the bank. An earn-out is paid only if a later target is hit, under a definition the buyer may control. Rollover equity is a stake in a company you no longer run. All three can raise the stated price and lower the wire. Put the face amount, the rate, the term, and whether the bank is ahead of you in the letter. "A customary seller note" is not a term. The risk of the note is the seller-financing guide. The earn-out is earn-outs, holdbacks, and contingent payments. Rollover is the second bite.

If two buyers offer $10 million, the one with more cash at closing is the higher offer, even when the other has a prettier multiple. Compare them on the same page. Who pays more in a sponsor deal versus a strategic deal, and what you give up, is private equity versus a strategic buyer.

Exclusivity Is the Trade

Exclusivity means you will not solicit, encourage, or negotiate another sale for a stated period. Some letters still let you receive an unsolicited inquiry and tell the exclusive buyer it arrived. Some forbid even that. Read the verbs. "Solicit" is narrower than "discuss." A buyer who asks you to "pause" other talks before the letter is signed is asking for exclusivity without the price.

Buyers often ask for 60 to 90 days. A quality-of-earnings review and a lender package on a $10 million company can need that long. A buyer who wants 120 days, a right to extend it by notice alone, and no obligation to show you a draft purchase agreement is asking you to leave the market while they decide whether they like you. Tie the clock to milestones: access to the data room in the first week, a financing indication by a stated day, a draft purchase agreement with enough time left to negotiate it. If a milestone is missed, exclusivity should end unless you extend it in writing.

Extensions are where owners get stuck. The letter says the buyer may extend by 30 days if diligence is "ongoing." Diligence is always ongoing if the buyer says it is. Prefer a short initial term and a conscious extension you sign, over an automatic one.

While you are exclusive, the company still has to run. The letter should not require you to get the buyer's permission for ordinary course decisions: hiring a replacement, buying a truck you already planned to buy, or quoting normal work. Extraordinary steps — a new lease, a dividend that drains working capital, a price change for the largest customer — are fair to flag. Ordinary Tuesday is not.

If the buyer walks, you want the right to pick the process back up the next day, with your information returned or destroyed, and with a clear statement that you may talk to the buyers you paused. Do not leave that implied.

The Terms That Get Missed

These are the clauses that show up in the purchase agreement as if they were always understood, because the letter was silent.

A financing condition

At $10 million the buyer rarely writes a check from a savings account alone. If the letter is "subject to financing" with no amount, no deadline, and no duty to pursue it, the buyer can shop lenders and then leave, and you have lost the months. Better: the buyer must seek financing promptly, must tell you if the loan comes in short, and loses exclusivity on a stated date if the financing is not in hand or firmly indicated. Ask the question in the letter: if the bank will only lend $4 million because a quality of earnings review cuts earnings, who covers the gap — a larger note from you, a lower price, or more equity from the buyer? If the letter does not say, the gap will be your problem later.

Escrow and indemnities

A slice of the price often sits in escrow for claims after closing. The percent, the release dates, and the cap on your liability do not have to be fully negotiated in the letter, but the letter should say they will be customary and mutual, or it should state a range. Silence lets the buyer's first draft set a large escrow, a long survival period, and a cap equal to the purchase price. You can negotiate those in the agreement. You will do it without another bidder in the room.

Your job after closing

A salary, a consulting agreement, and a non-compete are part of the economics. A non-compete that covers a region you do not serve, for a term you did not discuss, is a surprise. So is a consulting fee the buyer needs so they can deduct it, which your CPA may say is really more purchase price. Put the role, the rough pay, and the non-compete's geography and length in the letter, even if the full agreement comes later. If you will stay because you rolled equity, say whether that stay is a job with a vote or a job without one.

The conditions that can kill the price

Landlord consent, a license that does not transfer, a key customer contract that cannot be assigned, and a backlog the buyer has not been allowed to see are conditions. Name them. A letter that is "subject to satisfactory diligence" in the buyer's sole discretion is a free option on your company. Some discretion is normal. Sole discretion over everything, for 90 days, is not a sale process. It is a hold.

Expenses

Each side usually pays its own lawyer, lender, and accountant. Sometimes a buyer asks you to pay their expenses if you withdraw, or asks to be reimbursed if you take a higher offer during exclusivity. That can be fair as a narrow remedy for a breach of the no-shop. It is not fair as a fee for the buyer changing their mind. Cap it, and tie it to a breach, not to a change of heart.

Employees and customers

The letter should forbid the buyer from hiring your people or calling your customers except through a plan you approve. A management meeting is normal once the letter is signed and the circle is small. A surprise visit to the largest account is not. Decide who may know. At this size the circle is often you, a controller, and maybe one manager, under a confidentiality agreement of their own.

How Diligence Uses the Letter

Once you sign, the buyer's accountant will test the earnings the price was built on. Add-backs that were accepted in a conversation get a document request. A record year gets compared with the three before it. If EBITDA comes out lower, the buyer will ask to cut the price or change the mix toward a note. The letter's "non-binding price" is what makes that request possible. Your protection is a clear earnings definition in the letter, a peg method, and a willingness to end exclusivity if the retrade is really a new deal.

Diligence is the survival guide for that month. Give access on a schedule. Do not give the entire server on day one to a buyer who has not marked which parts of the letter bind. A data room is a project. It is also how you keep the exclusivity clock honest: the buyer cannot claim they are waiting on you if the files they asked for were there.

Above this size the letter gets longer and the buyer is more often a sponsor. The shift is what changes when a sale crosses $20 million. The exclusivity trade is the same. The purchase agreement is just heavier.

A Page to Mark Up Before You Sign

Sit with counsel and your advisor and mark the draft. These are the marks that matter.

1. Price, named as enterprise value or equity value, cash-free and debt-free, with debt and debt-like items listed.
2. Cash at closing, the note, any earn-out, and any rollover, each with an amount.
3. Stock or assets.
4. The working-capital method, or a date by which the peg will be a number.
5. The building and any related entity, in or out.
6. Exclusivity: the end date, the milestones, and what "no shop" prohibits. No automatic extension.
7. Financing: the buyer's duty to pursue it, and what happens if the loan is short.
8. Who the buyer may contact, and a confidentiality confirmation.
9. A sentence that says which sections bind.
10. Your right to walk if the price or the structure changes in a material way, and to talk to other buyers the day exclusivity ends.

If the buyer will not write those down, you do not have a letter. You have a request for a monopoly on your time. The person who should be across the table with you at this size is covered in business broker versus M&A advisor. The earnings definition they should already have built is in the valuation guide.

Talk With Bridge Point

If a buyer has sent a letter on a company you believe is worth about $10 million, Bridge Point Business Brokers can help you compare the price, the structure, and the exclusivity before you sign. Start with a valuation, M&A advisory, or contact us. Call (352) 515-0226.