Buyer's Guide · Buying a business
What to ask before signing an LOI
Before you sign a Letter of Intent (LOI), make sure it protects you: a due-diligence period long enough to verify everything (typically 30 to 60 days), the right to walk away and get your deposit back if the books don't check out or a required approval falls through, inventory priced separately, and a plain statement of exactly what you're buying. The LOI sets the rules for the rest of the deal, and your negotiating power is highest the moment before you sign it, never after.
A Letter of Intent is the short, mostly-non-binding document that says "here's the deal we intend to do" before lawyers draft the full purchase agreement. It feels like a formality. It isn't. The LOI fixes the price, the structure, and the rules of due diligence. Once you've signed, the seller knows you're committed, so your ability to renegotiate or protect yourself drops sharply.
So the time to get the terms right is before you sign, not after. Here's what to lock into the LOI, what to ask the seller first, and the LOI-stage red flags that should make you slow down.
The terms to lock into the LOI
A real due-diligence period with a termination right
Negotiate a window long enough to verify everything (typically 30 to 60 days) AND the explicit right to walk away and recover your deposit if what you find doesn't match what you were told. A due-diligence period with no escape clause is just a countdown, not a protection.
Exactly what you're buying: assets vs the entity
Are you buying the business's assets, or the legal entity itself (and with it, its liabilities)? This single distinction changes your risk, your taxes, and what you inherit. The LOI should state it plainly.
Inventory: included or priced separately?
Merchandise and stock are usually valued and paid for separately from the business, and counted at closing, not weeks before. Spell out whether the headline price includes inventory so it doesn't become a surprise line item at the end.
Contingencies: the approvals the deal depends on
Make the deal contingent on the things that can kill it: financing, the landlord approving the lease assignment, the franchisor approving the transfer, and the licenses moving to you. Each of these can take weeks; the LOI should give you the right to exit cleanly if any fails.
Seller transition + a non-compete
Pin down how long the seller stays to train you, and a non-compete so they can't reopen down the street and take the customers with them. For an owner-dependent business, the transition period is often what makes or breaks the first year.
Exclusivity and the deposit terms
A no-shop/exclusivity clause stops the seller from shopping your offer to other buyers while you spend money on due diligence. And be clear on the earnest-money amount and exactly the conditions under which it's refundable.
Questions to ask the seller before you sign
- Why are you really selling, and why now?
- What is NOT transferring with the business (supplier deals, the lease, a license, your own relationships)?
- Has the franchisor / landlord indicated they'll approve a transfer to a new owner?
- Will you provide three years of tax returns and bank statements during due diligence?
- How much of the revenue depends on you personally, and will you commit to a transition period?
- Is the asking price inclusive of inventory, or is that separate?
Want the full interview? See 25 questions to ask before you buy (built for gas stations, but most apply to any small business).
LOI-stage red flags
- Pressure to sign fast "before another buyer does." Urgency is a tactic, not a reason.
- Resistance to a real due-diligence period or to a deposit that's refundable if the books don't check out.
- Unwillingness to include contingencies for lease assignment, franchise transfer, or financing.
- No willingness to sign a non-compete or offer any transition/training.
One rule worth repeating: the cheapest “no” is the early one. The LOI is the last cheap exit before you start spending on attorneys and accountants. See where it fits in the full process.
Verify the numbers before you sign the LOI
The LOI fixes the price, so check that price against the real numbers first. Upload the seller's P&L, tax returns, and bank statements, and BizScore computes the real SDE, checks the asking price, and flags every red flag before you commit.
Frequently asked
- What is an LOI when buying a business?
- A Letter of Intent is a short, mostly non-binding document that sets out the intended deal (price, structure, and the rules of due diligence) before the lawyers draft the binding purchase agreement. It frames everything that follows, so the terms matter even though most of it isn't legally binding.
- What should an LOI include to protect the buyer?
- A due-diligence period long enough to verify everything (typically 30 to 60 days) with the right to terminate and recover your deposit; clarity on assets-vs-entity; inventory priced separately; contingencies for financing, lease assignment, franchise transfer, and license transfer; a seller transition period and non-compete; and exclusivity plus clear deposit-refund terms.
- Is a Letter of Intent legally binding?
- Mostly no. The core deal terms are usually non-binding intentions. But specific clauses (exclusivity/no-shop, confidentiality, and how the deposit is handled) are often binding. Have a business attorney review it before you sign, because the binding parts are exactly the ones that can cost you.
- How long should the due-diligence period be?
- Typically 30 to 60 days, written into the LOI. Give yourself enough runway for the slow approvals (a franchisor transfer or a landlord's lease-assignment consent can each take weeks) and make sure you can walk away with your deposit if any of them fall through.
About this guide
BizScore is built by first-time business buyers — people who watched someone close to them lose their life savings on a deal that looked clean on a spreadsheet and fell apart in the documents the seller never volunteered. That experience is why these guides exist, and why every BizScore report cites the exact document behind each finding.
Where the numbers come from: the benchmark ranges in our guides — SDE multiples, expense ratios, typical timelines — are widely-used industry rules of thumb, cross-checked against the analytical benchmarks BizScore applies inside its reports. Dollar figures such as a ~$15,000 quality-of-earnings review or a $5,000 deal attorney are representative of what buyers typically pay, not quotes; actual costs and multiples vary by deal. We review these figures periodically — last updated June 2026.
BizScore is an information service — think of it as a Carfax for a small business — not a CPA, an attorney, or financial advice. Use it to decide where to spend your professional dollars, and bring in a qualified professional before you sign anything.
This guide is general education, not legal, financial, or tax advice. An LOI has binding clauses. Have a business attorney review yours before you sign anything.