Published: [DRAFT] | Last Updated: 2026-06-25 | By: Scott Sylvan Bell | Location: Sacramento, California
What Is The Purchase Price In An LOI Contract?
Direct answer: The purchase price in an LOI (Letter of Intent) contract is the dollar amount a buyer proposes to pay for your business. It may appear as a flat number — “we will give you $10 million” — or it may include the multiple the buyer used to get there, like four times EBITDA on $2.5 million in earnings equals $10 million. Sometimes buyers hide the multiple so they do not signal their math to competing firms. The price is usually near the top of the LOI, though sometimes in the middle or at the bottom depending on who wrote it. Here is the critical thing: the LOI purchase price is the first volley in a negotiation, not the final number. The price is typically good for 60 to 90 days, subject to due diligence. By the time you net out holdback, taxes, legal fees, and accounting fees, a $10 million LOI may produce $5 million at offer and $3.5 million in actual proceeds. Do not buy the Ferrari, the Lamborghini, the yacht, or the Richard Mille watch based on the LOI number — that is how owners get hurt.
This concept connects to the broader Exit Ratio 360™ system. The LEAD Model is what you use to evaluate whether the purchase price in front of you is the deal you want to pursue. For directly related LOI mechanics, see What Is EBITDA In The Sale Of Business (the multiplier base), What Is An Earn Out In An LOI Contract (which reduces the headline purchase price), What Is A Reps And Warranty Clause In An LOI (which creates holdback), What Is A Termination Clause In A Letter Of Intent LOI, Stock Purchase Vs Asset Purchase In LOI Contract, and What Emotions Do You Go Through While Selling A Business.
How Buyers Present The Purchase Price — Three Common Styles
| Disclosure Style | What It Looks Like | Why Buyers Use It |
|---|---|---|
| Flat amount only | “We will give you $6 million for your company” — no math shown | Hides the multiple so the buyer does not signal their math to other competing firms or investors |
| Multiple disclosed | “$10 million based on a 4× multiple of your $2.5 million EBITDA” — math visible | Transparent buyers signal the math; intangibles like IP or operating area may bump 3× to 4× |
| Pre-LOI range | “We could give you somewhere between $9 and $12 million” before the formal LOI | Establishes expectations before due diligence and lets the buyer narrow once they see real financials |
5-Step Process To Evaluate The Purchase Price In An LOI
- Identify how the LOI presents the price — flat amount, multiple disclosed, or pre-LOI range. Each style tells you something about the buyer’s transparency and the room you have to negotiate.
- Calculate the implied multiple from your own EBITDA — if the buyer offers $10 million on $2.5 million EBITDA, that is a 4× multiple. Knowing the implied multiple lets you compare offers across buyers.
- Read the “subject to” provisions — the LOI price is typically good for 60 to 90 days subject to due diligence. The buyer will come back after diligence with a final price that may move up or down.
- Identify all the deductions that reduce the LOI number to actual proceeds — holdback (often 10-20% of headline), earnout terms (subject to hitting metrics), taxes, legal fees, and accounting fees.
- Estimate your true net before any major financial commitments — a $10 million LOI may produce $5 million at offer after diligence, and $3.5 million in proceeds after taxes and fees. Do not buy the Ferrari, Lamborghini, yacht, or Richard Mille watch until the wire actually clears.
Frequently Asked Questions About Purchase Price In An LOI
Direct answer: These ten questions and answers cover the most common topics business owners raise about purchase price in an LOI, including how the price is calculated, why some buyers hide the multiple, what “subject to” means, how the LOI price differs from the final executed price, and why premature celebration is the most common owner mistake. Each answer runs 40-60 words for voice search and AI citation extraction.
What is the purchase price in an LOI contract?
The purchase price in an LOI contract is the dollar amount a buyer proposes to pay for your business. It may appear as a flat number with no math shown, or it may include the multiple the buyer used to get there. The price is typically presented near the top of the LOI, though it can appear in the middle or at the bottom depending on who wrote the document.
How is the purchase price calculated in a business sale?
The purchase price in a business sale is typically calculated by applying a multiple to the company’s EBITDA (earnings before interest, taxes, depreciation, and amortization). For example, $2.5 million in EBITDA at a 4× multiple produces a $10 million purchase price. Intangibles like intellectual property, standard operating procedures, or strategic location may bump the multiple from 3× to 4× — the difference between $7.5 million and $10 million.
Why do some buyers hide the multiple they are using?
Some buyers hide the multiple they are using because they do not want to signal their math to competing firms, other investors, or future sellers. If a buyer reveals they paid 4× EBITDA for your company, the next seller they approach may demand the same multiple. Buyers protect their negotiating leverage by keeping the calculation private and presenting a flat purchase price instead.
What is a “subject to” clause in a purchase price?
A “subject to” clause in a purchase price means the LOI number is conditional on completing due diligence. The price is typically good for 60 to 90 days while the buyer asks for financials, verifies your representations, and runs their preliminary math. Once they get all the way through the financials, they come back with a full price that may match the LOI number or move from it.
Is the LOI purchase price the final price you receive?
No, the LOI purchase price is not the final price you receive. The LOI is a non-binding negotiation document — the first round, the first volley. By the time you net out holdback (often 10-20%), earnout subject-to clauses, taxes, legal fees, and accounting fees, the LOI number may be substantially higher than what actually arrives in your bank account.
Can you negotiate the LOI purchase price?
Yes, you can negotiate the LOI purchase price. Sometimes you do a redline and say “you were going to give me $10 million, I want $12 million.” Just because you put it in the LOI does not mean you get it. Just because the buyer put their number in does not mean that is what you sell for either. Both sides come up against a range that gets narrowed through the negotiation.
What is the typical pre-LOI price range?
The typical pre-LOI price range is what a buyer tells you to expect before the formal LOI arrives. For example, “we could give you somewhere between $9 and $12 million for your company based on the information and standards we plugged in.” The pre-LOI range narrows to a specific LOI number once the buyer commits to a formal offer, and narrows again after due diligence.
What net amount do you actually receive after taxes and fees?
The net amount you actually receive is significantly less than the LOI purchase price. Holdback amounts get held in escrow for 6-24 months. Taxes come out of the proceeds. Legal fees and accounting fees apply. As an example, a seller offered $5 million at closing may net $3.5 million after all deductions. Plan financial commitments based on net proceeds, not the LOI headline number.
Where does the purchase price appear in an LOI contract?
The purchase price usually appears near the top of an LOI contract because it is the most important term in the document, but Scott Sylvan Bell has seen them in the middle and at the bottom too. It depends entirely on who wrote the LOI and how they wanted to structure it. The position in the document does not change the importance of reading the surrounding terms carefully.
Why should you not celebrate the LOI number prematurely?
You should not celebrate the LOI number prematurely because owners who do start looking at yachts, Ferraris, Lamborghinis, and Richard Mille watches before due diligence ends — only to come back at the end of diligence and be offered half. Even when the final offer holds at the LOI number, taxes, legal fees, and accounting fees reduce the actual proceeds. The LOI is the first volley, not the wire transfer.
Full Transcript From the Video
Direct answer: The full cleaned transcript appears below for depth and accessibility. Scott Sylvan Bell explains what the purchase price in an LOI contract is, how buyers calculate it using EBITDA multiples, why some buyers hide their math, the 60-90 day “subject to” window, the negotiation reality of LOI numbers, and the operator-level warning about premature celebration before due diligence completes. Location recorded: Sacramento, California.
If you are a business owner and you get an LOI contract and you want to know what the purchase price is and why does it matter, this is a fantastic question. I am Scott Sylvan Bell, coming to you live from Sacramento, California — a perfect day to talk about sales and business and a fantastic day to talk about you for Consulting Secrets.
Your company is up for sale and a private investor or private equity company comes in and they give you a letter of intent contract. It says — for your company, we are going to pay you $10 million. Sometimes in a letter of intent, they will just give you the number. They will say — hey, here is what we want to offer you, we want to give you 10 million bucks for it. And then it may say in that $10 million, there is going to be a 20% hold back, or $2 million.
Occasionally what companies will do is they will give you the multiple. They will tell you — if you are willing to sell this company at $10 million, we gave you a four times multiple on EBITDA. So if your earnings before interest, taxes, depreciation, and amortization was $2.5 million and they gave you a four times multiple, that is where the math comes from.
Sometimes they do not want to give you the secret sauce. I have seen LOIs where they just give a flat amount. We will give you $6 million for your company. You are like — why are you not telling me the multiple that you are giving me? Because sometimes they want to hide the information that is being put out. Sometimes they do not want to signal to another firm, to another investor, to another person and say — here is how we figured out our math. Sometimes you will be told — hey, we just put it into a calculation, the calculator’s calculation spits it out, and this is where we got our number from.
Sometimes there are intangibles in the business like intellectual property. Sometimes there is an area that the company wants to be within and they go — we really want this company. Normally we would pay three times, which would be $7.5 million, but because of your area, your standard operating procedures, your intellectual property, we are going to pay four.
Usually the purchase price is more towards the top of the contract than at the bottom. But I have seen them at the top, I have seen them in the middle, I have seen them in the bottom. It just depends upon who wrote it and how they wanted to do it. It is most common at the top.
Your purchase price may really excite you. It may disappoint you. Remember, LOI — another fancy term for negotiation piece — may get you super excited. A company like Scott Co may come in and say — I will give you $10 million. And then we get into due diligence.
In a non-binding letter of intent contract, you just have to be aware — this is the first round. This is the first volley. Sometimes there is a period of time in that contract that says the price is going to be good for 60 or 90 days, subject to due diligence. And subject to in that clause means — hey, once we go through and we do some more math, we have asked you for some financials, we did our first preliminary round and we got through it and we are good to go. Once we get all the way through the financials, then we are going to come back with a full price.
Sometimes you get your LOI, you look at it, you do a red line and say — you were going to give me 10, I want 12. Just because you put it in there, it does not mean you are going to get it. Just because they put it in there, it does not mean that is what you are going to sell for. You are going to come up against a range.
A company pre-LOI may tell you — here is what to expect, we could give you somewhere between $9 and $12 million for your company based upon the information and the standards and everything that we plugged in. Your purchase price is not always going to be the actual purchase price by the time that everything is done.
Fair warning — I have seen companies where the person goes to sell their company and they think they are getting $10 million, so they go out and they are like — they start looking for yachts and Ferraris and Lamborghinis and Richard Mille watches, only to come back at the end of due diligence and they are offered $5 million.
Remember, taxes have to come out of that money too. There are also other fees associated, maybe legal fees and accounting fees and everything that goes along with it. So if you get $5 million at the end, it may be like $3.5 million.
I really want to be clear on this. Your purchase price is not always what the executed price is going to be upon the sale.
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