If you’re hoping to buy or sell an online business and it’s your first time being involved with a sale, you’re about to be introduced to a whole new set of terminology. The process used to sell a web business involves a number of steps and many types of documentation. While website brokers can help you navigate the process, having a thorough understanding of some of the most important terms is sure to come in handy. One term you’re almost certain to encounter is a Letter of Intent, and this document is incredibly important to both buyers and sellers.
The Basics of a Letter of Intent
A Letter of Intent is a document that is signed by both the buyer and the seller of an online business. The document includes a basic outline of a sales agreement and lists the key points to a deal. Letters of Intent are used during the sale of all businesses, not just Internet companies. They are a standard part of the sales process and often required for the sale to move forward. Often times, Letters of Intent are drafted by lawyers, but Internet business brokers may have standard templates that can be used to create the letters and keep legal fees to a minimum. Sometimes, a Letter of Intent is called a term sheet or discussion sheet.
How a Letter of Intent Works
The process for a Letter of Intent is typically the following:
1. The buyer and seller reach a verbal agreement regarding a sale.
2. One party drafts the Letter of Intent and signs the bottom.
3. The other party reviews the letter.
4. Changes may be requested by the receiving party and the letter revised accordingly.
5. The receiving party signs the bottom of the letter, stating that they acknowledged and accepted it.
Purpose of a Letter of Intent
There are many reasons that a Letter of Intent is written, as the document serves a number of purposes. These include:
- Clarification – The sale of an online business can be very complex, and often, the details are very complicated. When the buyer and seller meet, it’s possible that they may walk away from the table with different interpretations of what has been agreed upon. The Letter of Intent spells out in writing what the terms of the sale will be. It gives the other party the chance to review them and ensure that they have the same understanding of the deal.
- Declaration – Once both parties agree to the Letter of Intent, it signifies that both are interested in the deal. This allows the process to move forward through due diligence and financing. The letter is a commitment that shows both parties are serious about proceeding.
- Protection – Often times, Letters of Intent will include nondisclosure agreements and good faith clauses that protect the buyer and seller during the negotiation process. Signing binds both parties to these clauses and offers protection if the deal ultimately falls through.
What’s in a Letter of Intent?
The specific details of a Letter of Intent will vary from deal to deal. Still, there are some basic pieces of information that are nearly always included in the document. These include the agreed selling price and a complete detailing of the agreed payment terms. Normally, the Letter of Intent will also spell out all that the buyer will receive, including physical assets, the domain name, patent and social media accounts. The letter will usually establish a due diligence period as well.
What a Letter of Intent Isn’t
It’s important to understand that a Letter of Intent is not the same as a purchase agreement. The letter simply outlines one party’s intent to sell a business and the other party’s intent to buy it. It does not if properly worded legally bind the buyer or seller to sell, purchase that business. Keep in mind some of what included may be legally binding such as a non-disclosure stipulation that may be included in the document. Because some parts of the document may be legally binding it’s important that both the buyer and seller retain the assistance of knowledgeable experts like lawyers and website brokers when creating and signing letters of intent.
Whether you want to sell a web business for the best possible price or purchase one to become your own boss and realize your dreams of becoming an entrepreneur, one of our online business brokers can help guide you through the selling process and assist with everything from Letters of Intent to negotiating a selling price. Call us today to learn more about how we can help.