An LOI is a letter of intent: a written summary of the deal a buyer proposes, issued before the long form contract is drafted. Most of it is not binding, a few clauses are, and signing it usually takes your business off the market. That combination is why it matters more than its length suggests.
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What is an LOI in business, and what it contains
A price or a price mechanism, the structure of the deal, what is included and excluded, how any deferred consideration works, the diligence the buyer will do, a timetable and a request for exclusivity. Good ones say what the price assumes; vague ones leave those assumptions to be discovered later, at your expense.
Which parts bind you
Exclusivity, confidentiality and the costs clause are usually binding even though the price is not. Exclusivity is the important one: from signature until it expires the buyer is your only buyer, and your negotiating power falls accordingly. Read its length and whether it extends automatically.
Why the terms matter more than the number
A price agreed without settling structure, working capital, escrow and any earnout can move a long way once those are pinned down, and by then the other bidders have gone. Settling them in the letter, while several buyers still exist, is the single most valuable hour a seller spends in the whole process.
Other questions people ask
Is an LOI legally binding?
Usually not on price and terms, but generally binding on exclusivity, confidentiality and who pays their own costs. Those clauses are the ones to read closely.
Can I sign more than one?
Not while an exclusivity clause is running. That is exactly what it prevents, which is why the terms should be right before you sign.
What is the difference between an LOI and an IOI?
An indication of interest comes earlier, gives a range rather than a number and asks for no exclusivity. A letter of intent narrows to one buyer and usually does.