After a potential buyer has examined the seller's offer memorandum, the broker will orchestrate a meeting between seller and prospective buyer to answer further questions and discuss the business operation at length. 

If the potential buyer is still interested in the company, he will typically submit a formal offer, often in the form of a letter of intent or offer.  (Note that this article addresses specifically the  LOI as a form of an offer).  This is a serious step for both parties as vital price information and terms are agreed upon.  Although numerous items may be addressed in a letter of intent - many of which are legal-oriented, the following five business concerns should be dealt with in order to proceed into due diligence:

Business Issues Addressed in an LOI

• Price
• Payment Terms and Conditions
• Deposit
• Due Diligence Items
• Proposed Closing Date

Price 

The price offered by the purchaser will be the starting point.  A common euphemism is that "Due Diligence is when the buyer reaches in your pocket to lower the purchase price."  As such, the importance of the initial price is of utmost importance for the seller.   Therefore, the seller should seek to obtain the best possible price and terms before signing the Letter of Intent. 

Terms and Conditions

This obviously applies to the Terms and Conditions as well; the seller will want to receive as much cash as possible at closing and will need to negotiate that point before signing the LOI.  Again, the LOI is a point that the buyer will not exceed as time goes on, but he will seek a reduction if he notices any negative changes in the business during due diligence that were not there previously.    An example of a material adverse change is a lost long-term contract that the seller included in future cashflow projections.

Deposit

The buyer also needs to further illustrate the seriousness of his intentions by putting a deposit in escrow during the due diligence process.  Because he will want the business to be off the market during this time, he needs to be willing to place a reasonable amount of money in an escrow account in order to further show that he is earnest in his desire to purchase the company.

Due Diligence Requests 

Additionally, the seller also needs to ensure that the due diligence items are reasonable and can be accomplished.  Not only does this provide the seller a chance to discuss areas that will be heavily examined, it provides her an opportunity to lean forward and proactively begin posturing for the inspection that will come.  The buyer will want to get a firm grip on the inner workings of the operation, financial situation, equipment, etc, so the due diligence list is the first look at what the seller will open for review.

Closing Date 

The final major point on a Letter of Intent is the proposed closing date.  The date should be between 30 and 60 days after signing the LOI.  The seller will get an idea of how aggressive the buyer is and have an opportunity to make her wishes known.  Most sellers prefer to accomplish all inspections as expeditiously as possible in order to minimize lost/hindered work days and impact on the daily operations of the company.  Buyers should seek the same end; if not, the LOI provides a seller the opportunity to address this issue and drive for a reasonable closing date.

Summary

In conclusion, the LOI formally ends any informal data gathering and proves that a potential buyer has the desire to purchase the company and will do so if all due diligence inspection items are accomplished in a satisfactory fashion.  Therefore, the seller needs to ensure that the price and terms are agreeable; this is her main goal.  All other subtleties will be ironed out in great detail during the binding Asset Purchase Agreement drafted by her legal council.

Note:  This article does not constitute legal advice.  Before executing any contract be sure to consult with appropriate legal and professional counsel.