Page 8 - NBIZ October 2023

Two Terms Business Owners

Must Know:

The IOI and LOI

By Patrick Ungashick

usiness owners contemplating selling
their company need to understand a
host of important concepts and issues
Bassociated with the sale process and
transaction. During the sale process, it is likely
one will encounter two similar acronyms: IOI and
LOI. While sounding nearly the same, these two
terms represent very different steps in the sale pro-
cess, and it is important to understand what each
acronym stands for and how it is used. This article
explains the meaning of IOI and LOI, explains the
difference between these steps in the sale process,
and offers guidance to business owners on how to
use this knowledge to help prepare themselves and
their company for a potential sale.
The IOI

IOI stands for Indication of Interest and LOI
stands for Letter of Intent. To understand their
meaning and purpose, one must examine the
process commonly used in the sale of privately
held companies.
When a company is being marketed for sale,
early in the process there is usually a period of
initial conversations between the seller and poten-
tial buyer(s). If an investment banker or broker
is representing the seller, that advisor usually
handles these inquiries on the seller’s behalf. After
these initial explorations, both the seller and the
potential buyer(s) want to determine if there is
sufficient interest and common ground on key
topics—including price—to warrant spending fur-
ther time and resources pursuing a transaction.
To determine if sufficient mutual interest exists,
at this point it is common for the seller to issue an
IOI, or Indication of Interest.

8 NBIZ ■ October 2023