When a buyer and seller agree in principle on a deal, the first document they usually sign is a letter of intent — an LOI. A lot of people treat this like a handshake on paper, a non-binding agreement that just gets the conversation going. That's a mistake that can cost you leverage, money, and months of your life.

Here's the reality: while most LOIs are technically non-binding on the final sale, the terms you agree to in that document become the anchor for everything that follows. Purchase price, deal structure, due diligence period, exclusivity, and what happens to the employees — all of it gets sketched out in the LOI. Once both parties have signed it and started spending time and money on due diligence, it becomes very difficult to renegotiate those core terms, even if you technically have the right to walk away.

What I see go wrong most often is buyers and sellers signing LOIs without understanding a few key provisions. Exclusivity clauses — also called "no-shop" clauses — mean the seller agrees to stop talking to other potential buyers for a set period of time, usually 60 to 90 days. That's significant. If you're the seller, you're taking yourself off the market. Make sure the exclusivity period is realistic and tied to the buyer actually performing.

The allocation of the purchase price matters enormously for tax purposes, and this is often left vague in LOIs. Asset sales versus stock sales are taxed very differently for both sides, and buyers and sellers almost always have opposite interests when it comes to how the purchase price is allocated across asset categories. If the LOI doesn't address this, expect a fight during contract negotiations.

Finally, pay attention to what the LOI says about earnouts, seller financing, and representations and warranties. These aren't details — they're the deal.

Before you sign a letter of intent — whether you're the buyer or the seller — have an attorney review it. At BLG, we help clients understand what they're agreeing to before it becomes the baseline for a transaction worth hundreds of thousands or millions of dollars.