Letter of intent, proposed acquisition of the Two Fig cafes
Letter of intent template for buying a business
A letter of intent is the deal on one page, written before either side has spent money on lawyers, and its only binding parts are the promises that make spending that money safe. This example records a cafe acquisition of up to $1,228,000 with an earn out, gives the buyer 45 days of exclusivity, and numbers the paragraphs that bind.
The document, page by page
Every page as it renders and as it prints, with nothing summarised. Read the wording before you reuse it.
Section by section
What each section is for, so you can keep the ones you need and drop the rest.
- Letterhead and addressee
- Ledger letterhead, the date, both sellers, private and confidential.
- Opening
- The letter records principal terms and binds only as stated in paragraph 9.
- 1. Transaction
- An asset purchase of the two cafes; the company excluded.
- 2. Price
- $950,000 cash, $28,000 stock, an earn out up to $250,000; total up to $1,228,000.
- 3. Conditions
- Due diligence, landlord consents, key staff retained, no material adverse change.
- 4. Due diligence
- 30 days of access: financials, leases, supplier contracts, employee and food safety records.
- 5. Timetable
- Four dated steps from signing to completion on 30 November.
- 6. Employees
- Offers to all 23 staff; sellers pay entitlements to completion.
- 7. Sellers restraint
- A 3 year, 10 km restraint to be negotiated in the sale agreement.
- 8. Costs
- Each side bears its own adviser costs.
- 9 to 12. Binding provisions
- The binding list, 45 day exclusivity, confidentiality, the non binding statement.
- Acceptance
- The buyer signs; both sellers countersign under accepted and agreed.
Binding and non binding: exclusivity, confidentiality and the rest
The classic analysis, from the High Court case Masters v Cameron, is that a preliminary document can show three intentions: bound now with formal terms to follow, bound now but performance waits for the contract, or not bound until the contract is signed. A letter of intent avoids the argument by saying which category each paragraph is in. The commercial terms sit in the third category, because due diligence has not tested them yet. The promises that protect the process bind immediately: the sellers stop shopping the business while the buyer spends on advisers, and the buyer keeps what it learns confidential if the deal dies. Governing law binds too, so a dispute about the binding paragraphs has a home.
How to adapt this document
For a commercial lease, the letter goes from tenant to landlord and the table holds the rent, term, incentive and fitout contribution, with exclusivity becoming a promise to hold the premises off the market while lawyers draft. For a large supply deal, the table holds volumes, unit prices and delivery windows, and confidentiality does the heavy lifting. For a senior hire, an employment LOI records title, salary, equity and start date, subject to board approval and a contract. The skeleton survives every variant: the deal in numbers, the conditions, a dated timetable, one paragraph naming what binds, and a countersignature block.
What makes this document work
The price is a table with a total, so the earn out reads as conditional money
Paragraph 2 shows three components: $950,000 cash at completion, stock at cost estimated at $28,000, and an earn out of up to $250,000 paid only if combined revenue exceeds $2.6 million. The summary row totals up to $1,228,000, so everyone sees which part of the price is certain.
The timetable makes 45 days of exclusivity a reasonable ask
Paragraph 5 is four dated steps: signing 15 September, due diligence complete 15 October, sale agreement 31 October, completion 30 November. Sellers resist an open ended promise to stay off the market; they accept 45 days when the letter shows what happens in each of them.
Paragraph 9 names the binding paragraphs, and the sellers sign that list
The letter says only paragraph 9 and paragraphs 10 and 11 bind: exclusivity, confidentiality and governing law. Everything else, including the price, stays intent. The accepted and agreed block has both sellers sign beneath that statement, so nobody can later argue the whole letter was a contract of sale.
Questions people ask
Is a letter of intent binding?
Only the paragraphs it says are. Courts read the words, not the title, so paragraph 9 states that exclusivity, confidentiality and governing law bind and nothing else does. Those parts make spending on due diligence safe; the price must not bind, because due diligence is what tests it.
What is an earn out?
Deferred purchase price paid only if the business performs after completion. Here the sellers receive up to $250,000 twelve months after completion if combined revenue exceeds $2.6 million. The buyer pays for the sellers' confidence in the revenue only if it proves true.
How long should exclusivity be?
Long enough to finish due diligence and draft the sale agreement, no longer. This letter gives 30 days of diligence inside 45 days of exclusivity, with signing a fortnight after diligence ends. Between 45 and 60 days is common for a small business purchase.
What is the difference between an LOI, heads of agreement and a term sheet?
Mostly the industry using the name. All three record the outline of one transaction before the binding contract, and all face the same question of which parts bind. A memorandum of understanding records cooperation rather than a purchase; that page is linked below.
What happens to the staff when a business is sold?
In an asset sale employees do not transfer automatically; the buyer offers new contracts, which paragraph 6 records for all 23 staff on no less favourable terms. The sellers pay entitlements accrued to completion, and local employment law adds transfer of business rules on top.
Should a letter of intent go on letterhead?
Yes. It is a letter from the buyer, so it carries the buyer's letterhead and signature. The accepted and agreed block is what makes it more: once both sellers countersign, it becomes a two sided record of the deal outline and the binding promises.
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