We know selling your business comes with a lot of questions. This is part of our ongoing series, breaking down everything you need to know step-by-step. 

There's no shortage of paperwork when you sell a company. Two of these documents trip up first-time sellers often: the Indication of Interest (IOI) and the Letter of Intent (LOI). They sound similar, they cover overlapping ground, and they arrive one after the other, so it's easy to confuse them. But they do different jobs at different moments, and knowing which is which helps you make better calls when it counts.

Below, we break down what each document is, how they differ, and the key things to weigh for you and your business when one lands on your desk.

Why would a buyer submit an Indication of Interest (IOI)?

Think of an IOI as a filter. Early on, you might have a dozen or more interested buyers, and you can't realistically take all of them into due diligence. The IOIs that come in narrow the field to a manageable shortlist worth taking to the next stage.

You may not see an IOI at all if you're running an informal process or talking to just one buyer. In that case, the buyer might skip straight to a loose, early version of an LOI, or simply talk terms through with you in a less structured way. Either way, the things an IOI would normally cover are still worth thinking about early; they tend to surface the questions you and the buyer most need to work out.

What’s actually in an IOI?

When you're running a more formal process, a buyer's IOI is usually responding to a process letter: a document your investment bank sends out on your behalf that lays out the next steps and asks buyers to address specific points. (You'll typically see different process letters at the IOI stage, during due diligence, and at the LOI stage.) Here's the terms a process letter might ask a buyer to cover in their IOI.

An indicative price. This is always included, and it's almost always a range rather than a single number. When the range is wide, focus on the bottom end; that's the figure you should assume you might actually get, so make sure it still meets your goal. Most deals are quoted on a "cash-free, debt-free" basis. In plain terms: the price assumes the company is handed over with no cash and no debt. Any debt gets paid off, and any leftover cash goes to you, the seller.

Where the money is coming from. The IOI should tell you how each buyer plans to fund the deal. A buyer using their own money can usually move faster than one relying on a lender or an outside capital provider, who may need extra time and approvals before they can close. And if a buyer plans to fund part of the purchase with debt, this is your chance to look at how much, and whether that debt load is something your company could carry comfortably down the road.

The "people plan." This is what the buyer intends to do with your management team and employees. It might be spelled out formally in the IOI, or it might only come up in conversation. Either way, now is the time to understand what they have in mind for your people and check that it lines up with your goals and values.

Understanding the Letter of Interest (LOI)

By this point you've had real, detailed conversations with each remaining buyer, so you should have a clear sense of their vision for the partnership and whether the personal fit is there. They've also done enough digging to understand your company well and to know where they'd want to look closer. This is the stage where they submit an LOI.

Here's how it plays out: multiple buyers submit LOIs. You review them, negotiate, and then choose one. By signing that buyer's LOI, you agree to deal with them exclusively for a set period (often 30–60 days) while the two of you work toward a final purchase agreement. That exclusivity window is one of the few parts of an LOI that can actually be binding. So while an LOI is generally not legally binding, it lays the groundwork for negotiating and drafting the formal purchase agreement.

The goal is to pin down the terms that matter most to each side now, and find win-win solutions early, so the rest of the deal runs smoothly instead of stalling on a surprise later.

Note that not every sale runs as a formal, multi-buyer process. If you've been talking to just one buyer, you'll still get an LOI at some point; it may just arrive sooner, with less due diligence done than in a competitive process. 

What’s actually in a LOI?

An LOI covers much the same ground as an IOI, just with the detail filled in and the numbers locked down. Where the IOI gave you a valuation range, the LOI gives you a firm proposed price. If the buyer is using any outside financing, the LOI usually shows where that money is coming from, often with documents or commitment letters from the lenders to back it up. And the plan for your management team and employees, which may have been loose before, should be fully worked out here and match what the buyer told you in your conversations. 

Here are the terms a process letter might ask buyers to address in their LOI:

• Final deal terms: A complete summary of the proposed terms that will shape the purchase agreement. In a final bid round, buyers are sometimes asked to mark up a draft purchase agreement too.

• Final purchase price: A firm number now, not a range. Buyers can revise their bid based on what they found in due diligence, so this figure may land outside the range they floated in the IOI.

• Final structure and funding: Confirmation of how the deal is structured (a stock sale vs. an asset sale, which can change your tax bill) and more detail on funding, sometimes with lender support letters attached.

• Updated timeline: A final path to closing, listing whatever due diligence is still outstanding.

• Final management roles: By now the buyer should have settled what happens to your management team after close.

• Exclusivity: A window (usually 30–60 days) during which you agree to talk only to that buyer while they finish up. In competitive, well-run processes sellers often won't agree to this; it's more common in smaller deals. If you do agree, this is one part of the LOI that can be legally binding.

• Closing conditions: Any tasks, approvals, or consents that have to be wrapped up before the deal can close.

• Additional items: Things that come up case by case, such as management employment agreements, a commitment to buy reps and warranties insurance, and retention or transaction bonuses.

One last note

LOIs are often iterative, especially in competitive processes. You and your advisors will usually negotiate certain points before you sign the one you prefer, and when buyers know they're up against each other, that's another moment where you can push for a better price or stronger terms.

Final Thoughts

The IOI and the LOI are the two milestones that take you from a field of interested buyers to a single, committed one. The purchase agreement then turns that into a binding deal. 

You don't have to decode all of it alone. The right advisor sits in your corner, translates the terms, flags what actually moves your proceeds, and pushes to get you the best deal possible. The earlier you bring one in, the better positioned you'll be.