The Letter of Intent (LOI) is the first formal step in selling your staffing agency. Think of it as a “deal outline” — not the final contract, but a roadmap that sets expectations for both sides. The LOI is where you lock in the big picture: price, structure, and process. Getting this stage right is critical because it shapes everything that follows.
What the LOI Really Is
- Non‑binding overall: Most of the LOI is not legally enforceable. It’s more like a handshake in writing
- Binding parts: Certain sections are binding, such as confidentiality (you can’t share deal details) and exclusivity (you can’t shop the deal to other buyers for a set period).
Key Terms Explained
- Purchase Price & Structure
- Purchase price is the total amount the buyer is offering.
- Structure is how that money is paid. For example:
- All cash at closing: You get the full amount when the deal closes.
- Earn‑out: Part of the price is paid later, but only if the business hits agreed‑upon performance targets (e.g., revenue or profit goals).
- Seller financing: You act like the bank, letting the buyer pay part of the price over time.
- Working Capital Adjustment
Buyers want to make sure the business has enough cash, receivables, and other short‑term assets to keep running smoothly after closing. The LOI will spell out how much “working capital” must be left in the business. If it’s less than agreed, the purchase price may be reduced.
- Exclusivity Period
This is the time (often 30–60 days) when you agree not to talk to other buyers. It gives the buyer confidence to spend money on due diligence. The risk for you is being locked in too long, so keep the period reasonable.
- Conditions to Close
These are the “if/then” requirements before the deal can close. Examples: the buyer must finish due diligence, secure financing, or get board approval.
Negotiation Priorities for Sellers
- Push for clarity on how much is paid upfront versus later.
- If there’s an earn‑out, make sure the performance targets are realistic and clearly defined.
- Limit exclusivity to a short, fair window.
- Watch the working capital definition closely — it can have a big impact on your net proceeds.
- Don’t sign until your attorney and broker have reviewed every clause.
Common Pitfalls
- Signing an LOI with vague terms that let the buyer renegotiate later.
- Agreeing to an earn‑out without clear, measurable goals.
- Accepting a long exclusivity period that ties your hands.
- Overlooking tax consequences of the deal structure.
Your Next Step
- Review every LOI with your advisory team before signing.
- Compare offers not just on price, but on structure, timing, and risk.
- Remember: the LOI is your chance to set the framework for a successful closing.
At SAB, we connect you with qualified buyers whose acquisition strategies align with your agency’s strengths. Our goal is to make sure you enter due diligence on solid ground.
Next in our series → Due Diligence: What to Expect & How to Prepare
