What to Know Before You Sign a SaaS LOI

A Letter of Intent (LOI) marks a pivotal moment in the acquisition process, as the first real sign that a buyer is serious. While not fully binding, an LOI document sets a proposed deal's tone by outlining its key structure, expectations, and timeline.

If you've reached or are nearing the point of LOI, congratulations! This is no small feat, so be proud of how far you've come. But it's just as important to understand what this means for you and your business.

This guide is here to help make the whole process easier. It will walk you through:

• LOI terms founders should understand
• Red flags to watch for
• How to prepare for an LOI (even before you get one)
• Ask the right questions
• Final thoughts: Clarity, trust, and ownership

LOI terms founders should understand

There are several standard LOI terms you should familiarize yourself with:

1. Purchase price & payment terms

The fine print matters. Most LOIs break the purchase price into multiple components, which dictate how much you get at signing, what’s reserved, and how performance-based payments work.

Cash upfront: The amount you’ll receive upfront upon deal completion.

Holdbacks: A percentage (typically 5–20%) of the purchase price that’s withheld temporarily to cover any potential post-close liabilities or breaches.

Earnouts: Additional payments based on achieving specific performance targets (e.g. revenue, customer retention) post-sale.

While earnouts can be an incentive for continued growth, they’re often tied to buyer-controlled metrics, making them difficult to achieve. Ask for detailed earnout conditions and payout schedules upfront.

Prioritize clarity here. Don’t focus only on the total price, but also ask yourself, “How much of this is guaranteed, and how much is at risk?”

2. Working capital adjustments

Working capital adjustments ensure the business goes to closing with enough operational cash to keep it running smoothly. If your working capital is below this target, the difference could be deducted from your payout. These adjustments can affect your net proceeds significantly, sometimes by hundreds of thousands of dollars.

Clarity is key, as vague language here often leads to friction during final negotiations. What counts as “working capital” should be specifically outlined to avoid disputes. Ensure the LOI defines how working capital will be calculated and what’s included.

3. Exclusivity period (no-shop)

This clause gives the buyer a defined period to conduct due diligence and finalize the deal, during which you agree not to negotiate with other potential buyers.

Typical exclusivity windows range from 30 to 90 days, depending on deal complexity. Some LOIs include milestone-based timelines (e.g. diligence must start by day 30).

While exclusivity shows good faith, know that overly long or open-ended terms can disadvantage you, especially if the buyer slows the process. So, push for a fair and specific timeline and ensure their funds are confirmed. If you're pausing other conversations, your deal should have forward momentum.

4. Closing timeline

Your closing timeline should set expectations for when the deal will close, assuming due diligence goes smoothly. Closing should align with your business needs, not buyer delays.

A thoughtful timeline protects both parties. Ask your buyer what conditions or events might extend the timeline, and get those defined in writing. Normal timeframes for small to mid-sized SaaS acquisitions often range from 45 to 90 days post-LOI. 

Pushing too fast — or too slow — can signal trouble. Rushed timelines may signal inexperience or urgency on the buyer’s side. On the other hand, unclear or overly long closing periods could indicate indecision or limited capacity to execute.

5. Post-close support

Post-close support defines your transition role, duration, and compensation after the deal's done. Most buyers will request some form of support, especially for founder-led or solo-run businesses. This can include training and knowledge transfer, bug fixes or product support, and/or ongoing involvement (in the form of part-time consulting or a formal employment agreement).

Post-close expectations should be clearly spelled out: how long you’re expected to stay, your role, and how you’ll be compensated. Be specific, even with details as minute as how many hours you'll work, with whom, and using what communication methods. Ambiguous or indefinite terms can lead to expectations of long-term commitments.

Above all, know your boundaries. If you're hoping for a clean break post-sale, align that with the buyer’s expectations early on in the process.

Red flags to watch for

Like with any type of deal, there are always red flags to watch for. Your deal should be free of:

• Vague or missing terms (for instance, you'll need a clear price breakdown),
• Unusual earnouts or aggressive timelines,
• Retrading, or renegotiating terms post-LOI,
• No proof of funds or missing clarity on team plans, and
• One-sided legal provisions (e.g. only buyer bears costs).

If you get the slightest hint of any of these things, push back early, ask for clarity, and/or get legal counsel involved before signing.

How to prepare for an LOI (even before you get one)

If you're even remotely thinking about selling your SaaS, it's best to strategize, be proactive, and get as ready as possible for when that LOI day comes.

You can do so by keeping your financials tidy with monthly profit and loss statements (P&Ls), and centralizing contracts, IP records, and performance metrics.

Thoroughly consider your objectives: are you seeking immediate cash vs. long-term earnouts? What's your flexibility on timeline? What sort of job stability and pay protections would you like in place for your team?

Ask the right questions

You don't know what you don't know, as the saying goes. Asking the right questions (or failing to) can make or break your deal, so it's important to clarify certain things.

Here are some key questions to ask prospective buyers before you sign:

• Will LOI terms hold through closing?
• What’s my expected ongoing involvement during transition?
• What are your plans for my team post-close?
• Do you have proof of funds? Or, if financing is pending, what's the timeline?
• When will diligence begin, and how extensive will it be?

Final thoughts: Clarity, trust, and ownership

Reaching the LOI stage is a major milestone, but it’s not the finish line. Remember, a thoughtful evaluation now leads to a better outcome later. So, be sure to take the time to review terms carefully, seek legal counsel (this one's essential), and ensure the agreement reflects your specific goals. A clear, well-negotiated LOI sets the tone for a smooth closing and positions your business for long-term success.

Ready for guidance in evaluating or negotiating your LOI? SureSwift helps founders build confident, exit-ready businesses — whether you're planning to sell now or in the future. Get in touch for insight, guidance, or to start a conversation.