Understanding an Offer Letter When Selling Your Business

Receiving an offer letter can feel like a major milestone in the sale of your business. It signals serious interest and often includes a headline price. However, understanding an offer letter properly is essential, because what looks like a strong offer on paper can contain terms that reduce the value significantly.

In this guide, we explain how to read and interpret a business sale letter of intent so you can protect your position and negotiate with confidence.

What Is a Business Sale Offer Letter?

An offer letter, sometimes referred to as a letter of intent or heads of terms, is a written summary of the buyer’s proposal. It normally includes:

• The proposed price and payment structure

• Conditions to completion

• Any role the seller will be expected to take post-sale

• The deal process and timetable

• Confidentiality and exclusivity terms

Most offer letters are non-binding, except for specific clauses such as exclusivity and confidentiality.

Understanding an Offer Letter: What to Look For Before You Sign

1. Headline Price vs What You Will Actually Receive

Do not focus only on the top-line figure. Break the offer down:

• What is paid at completion?

• What is deferred or conditional?

• Is there an earn-out, and how is it measured?

A £5 million offer that includes £1.5 million of performance-based earn-out is very different from £5 million cash on completion.

2. Completion Mechanism

Check whether the deal will use completion accounts or a locked box. Each method affects how the price is finalised and whether post-completion adjustments are made.

If the offer is silent on this, it should be clarified before progressing.

3. Debt and Working Capital Adjustments

Many buyers propose a “cash-free, debt-free” structure. Make sure the offer explains:

• Whether surplus cash will be retained by the seller

• What liabilities count as debt

• How the working capital target will be calculated

Without this, the final price may be reduced unexpectedly.

4. Seller’s Role After the Sale

Founders are often expected to stay on for a period. The offer letter should state:

• The nature and duration of your role

• Whether you will be paid a salary or fee

• Whether any part of the price depends on your ongoing involvement

These terms should be clear and realistic.

5. Conditions and Timeline

Most offers will be subject to:

• Due diligence

• Financing or board approvals

• Third-party consents

Also check for exclusivity clauses, which prevent you from speaking to other buyers for a defined period.

Final Thought

An offer letter is not a final agreement, but it defines the key commercial terms and shapes the rest of the process. Understanding an offer letter properly means looking beyond the headline number and into the mechanisms, assumptions, and conditions that determine the real value.

If you are unsure how to interpret an offer, we can help. Deal Clarity offers fixed-fee reviews of business sale offer letters to help you make informed decisions from day one.