What problems do sellers face with a Letter of Intent, and how do you solve them?

The Letter of Intent (LOI) sets the framework for negotiating a business sale and shapes the outcome on price, terms, exclusivity and leverage. Canadian sellers face seven recurring challenges — each with a practical solution to keep control of the deal.

1. Price — once the LOI is signed the price is typically fixed and rarely improves, and buyers are well-versed in valuation; solution: know your objective value first through an M&A advisor's Probable Opinion of Value, then negotiate from evidence

2. Consideration — lower-middle-market offers often include non-cash items such as vendor financing, equity rollovers, earn-outs or employment agreements; solution: clarify and document every element in LOI addendums before signing, since ambiguity favours buyers

3. Terms — after signing, buyers may renegotiate toward one-sided terms; solution: define critical terms (contingencies, warranties, indemnifications) before signing, with a qualified intermediary

4. Exclusivity periods — an overly long exclusivity erodes your bargaining power; solution: limit it to 30 to 90 days and tie it to milestones like financing, regulatory approvals and third-party consents

5. Negotiation leverage — leverage falls once the LOI is signed, especially if you rush; solution: keep multiple buyers engaged so a competitive auction preserves your power

6. Acting alone — going without representation invites unfavourable deals; solution: engage an M&A intermediary and a team of legal, financial, tax and wealth experts

7. Due diligence — discoveries can trigger re-trades or a lower price; solution: prepare early with organized records, reviewed statements, a Quality of Earnings (QoE) report and a secure data room

Key facts: LOI problems and solutions for sellers

Seven challenges: price, consideration, terms, exclusivity, negotiation leverage, acting alone, due diligence
Know your value (Probable Opinion of Value) before signing — price rarely improves afterward
Limit exclusivity to 30 to 90 days and tie it to milestones
Keep multiple buyers engaged and prepare due diligence early (QoE report, secure data room)

Disclaimer: This article is for general informational purposes only and does not constitute legal, tax or financial advice. Consult qualified advisors regarding your specific circumstances.