The headline price gets all the attention, but how a deal is structured often determines what a seller actually keeps — and whether the deal closes at all. It usually starts with a Letter of Intent, and understanding the LOI and the structure behind it is what separates a good outcome from a disappointing one.
- The LOI sets the framework: price, structure, what's included, timing, and exclusivity.
- Most of an LOI is non-binding, but confidentiality and exclusivity clauses usually are.
- Most small-business deals are asset sales, which affects taxes and liability.
- A higher price with poor terms can be worth less than a clean, mostly-cash offer.
- Seller financing and earnouts bridge valuation gaps but carry risk that must be structured carefully.
What a Letter of Intent does
A Letter of Intent (LOI) is the buyer's written proposal of the key terms: price, structure, what is included, timing, and the exclusivity period during which the buyer conducts due diligence. Most of the LOI is non-binding, but it sets the framework that everything afterward is built on. A clear, fair LOI is the foundation of a smooth close; a vague or overreaching one creates friction that can derail the deal later.
What is binding and what is not
Typically, the commercial terms in an LOI — price and structure — are non-binding, because they are subject to due diligence and the definitive agreement. But certain provisions usually are binding: confidentiality, and the exclusivity (or 'no-shop') period that prevents the seller from negotiating with other buyers while the deal is worked. Knowing which is which prevents costly misunderstandings.
Asset sale vs stock sale
Most small-business deals are structured as asset sales, where the buyer purchases the assets and goodwill rather than the legal entity itself. This generally limits the buyer's exposure to the seller's past liabilities and changes the tax treatment for both sides. Stock sales, where the buyer acquires the entity, are more common in larger deals. The right structure depends on the business, and it is a decision for your attorney and CPA — but your broker will flag it early because it affects price and taxes.
Why structure can matter more than price
A higher price with unfavorable terms can deliver less value than a lower price paid mostly in cash at closing. When you compare offers, look at how much is paid at close, how much is financed or deferred, how much is contingent on future performance, and the tax treatment of each. The best offer is the one that delivers the most after-structure, after-tax value to you — not simply the biggest number on the page.
Seller financing
Seller financing is where the seller carries a portion of the price as a promissory note, repaid by the buyer over time. It can widen the buyer pool, help a deal clear financing, and even count toward a buyer's SBA equity when held on standby. For the seller, it can increase total proceeds and signals confidence — but it also means you are, in part, a lender, so the terms and the buyer's strength matter.
Earnouts
An earnout makes part of the purchase price contingent on the business hitting agreed performance targets after the sale. It is a tool to bridge a gap between what the seller believes the business is worth and what the buyer is willing to guarantee. Earnouts can unlock a higher total price, but they shift risk to the seller and depend on clearly defined, measurable targets — vague earnouts are a frequent source of disputes.
Working capital and other moving parts
Deals also turn on details like the working-capital target (the inventory and receivables left in the business at closing), what assets are included or excluded, the seller's transition and training commitment, and reps and warranties backed by an escrow holdback. None of these are afterthoughts — together they determine the real economics of the transaction, which is why experienced advisors on both sides matter.
Frequently asked questions
Is a Letter of Intent binding?
Most of an LOI is non-binding, but certain provisions — like confidentiality and exclusivity — usually are. It sets the agreed framework from which the binding definitive purchase agreement is then drafted.
What is the difference between an asset sale and a stock sale?
In an asset sale, the buyer purchases the assets and goodwill, which generally limits exposure to past liabilities and changes the tax treatment. In a stock sale, the buyer acquires the legal entity itself. Most small-business deals are asset sales.
What is an earnout?
An earnout makes part of the purchase price contingent on the business hitting agreed performance targets after the sale. It can bridge a gap between buyer and seller expectations, but the targets must be defined carefully to avoid disputes.
Why would a seller offer financing?
Seller financing can widen the buyer pool, help a deal clear lender requirements, increase total proceeds, and signal confidence in the business — all of which can make the difference between closing and not.
This article is general information, not legal, tax, or financial advice. Every business and transaction is different — consult your attorney and CPA about your specific situation.