A letter of intent is where price, exclusivity and diligence access get written down. The questions you ask before that document decide whether you are locking in a real business or locking yourself into weeks of expensive disappointment.
This page is a practical question list for first-time buyers of a Main Street or lower-middle-market company: why the owner is selling, how much the business depends on them, who the customers and employees really are, what the lease allows, which add-backs will survive scrutiny, what transition help looks like, whether a non-compete is on the table, and what assets are actually included. Use it next to judging the numbers and full diligence. If the price band is still fuzzy, run the affordability calculator first so you are not negotiating an LOI on a deal your cash cannot close.
Short version: get clear answers on motive, owner dependence, customers, people, lease, add-backs, transition, non-compete and included assets before you grant exclusivity. Soft answers are fine. Soft answers that never harden are a reason to slow down.
Confirm the deal shape fits you before you grant exclusivity
The assessment is a two-minute read on capital, timing and owner type. An LOI burns calendar and goodwill. Start it on deals that clear that filter.
Take the assessment →Why are you selling?
Ask it early and ask it more than once. Retirement, burnout, health, a partner dispute, a move, or a better opportunity elsewhere are all common. What you want is consistency. A seller who says "lifestyle" on the first call and "the industry is dying" after you see the returns is handing you a diligence map.
Follow-ups that help:
- How long have you been thinking about this?
- Have you had the business on the market before, or under LOI with someone else?
- What would make you take it off the market?
- Who else knows you are selling (spouse, partners, key staff, landlord)?
SBA's guidance for owners who close or sell a business walks sellers through valuation, a sales agreement, and deciding how the business runs before close and what access the buyer gets. Sellers who have done that homework usually answer motive questions without flinching. Sellers who have not often improvise.
How owner-dependent is this place?
Ask what a normal week looks like for them. How many hours. Which customers only take their calls. Which vendors only trust their approval. Which passwords, relationships and estimating judgment live in their head.
Then ask what would break in the first ninety days if they left tomorrow with no training. The answer tells you whether you are buying a transferable firm or a job with a logo. Our guide on buying a business vs. buying a job is the longer version of that test. Before an LOI, you only need enough honesty to know if the price and your hours can absorb the dependence.
Who are the customers, really?
Request a top-customer list by revenue (names can wait for NDA). Ask:
- What share of revenue sits in the top five accounts?
- Are those relationships contractual or handshake?
- Who owns the relationship day to day: the seller, a salesperson, or a technician?
- Any customers already circling the drain, or any that arrived in a one-time spike?
- Will you allow reference calls during diligence under an agreed script?
Concentration is not automatically fatal. Undisclosed concentration is. So is a book of business that only renews because the seller golfs with the buyer every Thursday.
What about the employees?
Ask for headcount, tenure, pay ranges and who would be hardest to replace. Ask whether anyone has already been told about a sale. Ask who knows the systems, the job costing and the customer quirks.
Useful prompts:
- If you left tomorrow, who would customers call?
- Any key person already job-hunting?
- Are there employment agreements, noncompetes or bonus plans I should know about?
- What would it take for the lead technician or office manager to stay through a handoff?
People risk shows up in diligence, but the LOI is where you decide whether retention bonuses or a longer training period need to be priced into the deal.
Can the lease survive a new owner?
For a location-dependent business, the lease can matter as much as the P&L. Before exclusivity, ask:
- How much term is left, and what renewal options exist?
- Is assignment or change of control allowed, and does the landlord have a consent right?
- Personal guaranty requirements for a new tenant?
- Upcoming rent steps, CAM surprises or deferred maintenance fights?
- Does the seller own the real estate in a separate entity, and is that part of the deal or a separate lease?
A seller who has never spoken to the landlord about assignment is not ready for your close date. Build landlord consent into the timeline the LOI describes.
Which add-backs are real?
Ask for a written add-back schedule early, even a short one. IBBA defines add-backs as expenses added back to get closer to economic earnings. Your job is to separate personal and ending items from costs you will still pay.
Questions that cut through the fog:
- Which add-backs are personal (auto, travel, family payroll) and end at closing?
- Which "one-time" expenses showed up in more than one year?
- Will you provide tax returns and a bridge from the marketing P&L to the return?
- Any cash revenue that never hit the books? (If yes, assume a lender will not count it.)
SBA purchase underwriting under SOP 50 10 pushes lenders to verify the seller's financial statements and to justify cash-flow adjustments. Asking add-back questions before the LOI does not replace that work. It stops you from basing a price on a number that will not survive the bank.
What transition help are you willing to give?
Get specifics, not vibes. How many weeks on site? How many hours of phone support after that? Will they introduce you to the top customers and the landlord? Will they train on estimating, vendors and the software stack?
Write the shape of transition into the LOI as a shared expectation, then put the binding version in the purchase agreement. Buyers who skip this discover that "I'll help however you need" meant two awkward mornings and a forwarding address.
Will you sign a non-compete, and how wide?
Ask whether a post-close non-compete and non-solicit are expected, for what geography, for what activities, and for how long. Enforceability varies by state and by facts; that is lawyer territory. The business question is simpler: if the seller can open across the street next spring and call every customer they texted for twenty years, what did you buy?
Also ask about noncompetes that already bind key employees. You may need those to stay in place, or you may need new agreements. Surprises here change both risk and legal cost.
What is included in the price?
SBA tells sellers to list inventory and not leave out assets and liabilities in the sales agreement. Buyers should force that clarity before exclusivity:
- Equipment list with anything excluded (the truck the seller is keeping, the specialty tool that is personal)
- Inventory treatment: valued how, counted when, obsolete stock handled how?
- Cash, receivables and payables: stay with seller, or working-capital peg?
- Intellectual property, phone numbers, domain, social accounts, brand names
- Contracts that assign, and contracts that need consent
- Liabilities you are asked to assume
On the tax side, the IRS treats a lump-sum sale of a trade or business as a sale of each asset in many cases, with allocation under the residual method (see the IRS sale of a business page and Publication 544). What is included is not only an operations question. It is the starting list for that allocation.
How answers should change the LOI
Soft motive plus heavy owner dependence plus a short lease is not a "full ask" deal. It is a lower price, a longer transition, an escrow holdback, or a walk. Strong answers and clean books support exclusivity and a tighter diligence clock.
Keep the LOI mostly non-binding on price and terms if your counsel agrees that fits the situation, while being clear about binding pieces (confidentiality, exclusivity, deposit handling). IBBA describes the intermediary's job as a straightforward presentation of risk to both sides; a good broker will not punish you for asking adult questions before exclusivity. If someone rushes you to sign so you do not "lose the deal," ask what about the file cannot survive a week of daylight.
Pressure-test readiness while you line up questions
Two minutes on the assessment is cheaper than an LOI on a business that never matched your capital or the hours you can give.
Take the assessment →Common questions
When should I ask these questions: before or after the LOI?
Ask the big ones (why selling, owner role, top customers, lease assignability, what is included) before you sign a letter of intent. Use the LOI to lock price, diligence access, exclusivity and a timeline. Save deep document requests for the diligence period the LOI creates.
What if the seller refuses to answer before an LOI?
Treat silence as data. Some privacy is normal before an NDA. Refusal to discuss why they are selling, how involved they are day to day, or whether the lease can transfer is different. You can sign an NDA and still walk if answers stay vague.
How detailed should add-back questions get before an offer?
Detailed enough that you know which add-backs are personal and ending, and which are recurring costs dressed up as one-time items. You do not need a full quality-of-earnings report before every LOI, but you do need a written add-back list you can test against tax returns later.
Do I need a lawyer before the LOI?
For a simple indication of interest, some buyers draft a short non-binding LOI and have counsel review it. For anything with exclusivity, deposits, or binding clauses, get an attorney involved before you sign. The LOI shapes leverage for the rest of the deal.