You’ve spent years building your HVAC business. When a serious buyer shows up and puts an offer on the table, the first formal step is a letter of intent, or LOI. It’s a promising sign, but it can be confusing if you’ve never sold a business before.
An LOI isn’t a sales contract, but it’s not something to skim and sign either. You are in a much stronger position at the negotiating table if you understand what it includes, what it leaves open, and where things can go sideways.
What Is a Letter of Intent?
A letter of intent is a document a prospective buyer submits to express their serious interest in buying an HVAC business. It lays out the buyer’s proposed terms before either side moves into a formal purchase agreement.
Think of it as the starting line, not the finish line. The LOI signals that a buyer wants to move forward and outlines the deal’s basic framework. It shows they’ve done enough homework to make a real offer, even if many details still need to be worked out.
Most LOIs are non-binding, meaning neither party is legally obligated to complete the transaction. That said, certain provisions, such as confidentiality requirements and exclusivity clauses, are often written as binding. Know which parts carry legal weight and which don’t before you respond.
What Goes Into an LOI
While every LOI is different, most follow a similar structure. The document typically includes a proposed purchase price, which may be a fixed number or tied to a formula based on your earnings. It will also specify whether the buyer intends to purchase your assets or your equity. For most HVAC businesses, it is an asset sale, meaning the buyer acquires your company’s assets, typically without assuming your existing debt.
Beyond that, the LOI will typically address payment and financing terms. You’ll also see an exclusivity period, usually 30 to 90 days, during which you agree not to negotiate with other buyers while due diligence is underway. Lastly, you have the contingencies and a target closing date.
Keep in mind that the LOI is not the place to finalize transition arrangements, employee details, or the specifics of your post-sale involvement. These come later in the formal purchase agreement. The LOI just sets the broad terms.
Which Terms Should be Negotiated
An LOI is a starting point. You can, and should, negotiate before signing. Consider:
The Exclusivity Period
This is one of the most important terms in the document. Once you sign, you’re typically locked out of talking to other buyers for the duration of that window. A buyer who walks away after 60 days has cost you time and momentum. Push for a shorter exclusivity window, or at least tighter conditions.
The Payment Structure
Some buyers don’t pay the full price upfront. Instead, they’ll offer a deal where a portion of the money is held back and paid out later. It depends on you staying involved after the sale and helping the business meet specific performance goals. This type of deal is called an earn-out, and can be risky. Understand the exact terms before accepting.
Seller Representations and Warranties
These are statements you make about the accuracy of your financials and business operations. Broad or vague representations can expose you to liability after the sale closes, particularly if a buyer later claims something wasn’t properly disclosed.
What Red Flags to Watch For
There are a few things to watch for. A price that looks strong on the surface but is full of contingencies and earn-out requirements might not be as good as you first thought. Focus on the net number.
Watch for those earn-out structures that tie a large share of your payout to post-sale performance targets. Once you hand over operations, you limit your control and shift the risk from the buyer to you.
Be wary of any LOI that doesn’t clearly identify the deal as an asset sale or address how liabilities are handled at closing. Ambiguity in these areas almost always becomes a problem later.
What the Right HVAC Business Broker Can Do
When you’re ready to sell, work with a commercial HVAC business broker who specializes in your industry. A generalist advisor may be able to review paperwork, but might not recognize when a buyer is undervaluing your service agreement book, discounting your technician team, or proposing a deal that doesn’t reflect what your HVAC business is actually worth.
An experienced broker who works exclusively in HVAC transactions has seen enough deals to know what a reasonable LOI looks like. They have relationships with pre-qualified buyers and know the difference between someone ready to close and someone still figuring out their financing.
What to Do When You Receive an Loi
An LOI is a great start, but you’re far from the finish line. Review it carefully before you respond.
Get your CPA, attorney, and broker involved right away. Your CPA will review the finances, your attorney will flag problematic representations or liability language, and your broker will tell you whether the terms are any good.
When you do respond, negotiate specifics, not just price. Many sellers focus only on the purchase price and miss all the other details that affect how much you walk away with.
Keep the process confidential throughout. Don’t share news of an LOI or a potential sale with employees or vendors while the deal is in progress. Some buyers, particularly private equity buyers, have specific requirements around when and how a sale can be announced publicly.
At Business Modification Group, we work exclusively with HVAC business owners through every stage of the sale, including the LOI. We help you read the terms, negotiate the important details, and make sure you get a good deal. The terms in that document set the foundation for everything that follows. Take the time to get it right.
