What is Indication of Interest (IOI)?
The Short Answer
Indication of Interest (IOI) explained simply
An Indication of Interest (IOI) is a document a potential buyer sends to a seller. It signals their initial interest in buying the business. Think of it as a preliminary handshake. It usually includes a proposed price range, general deal structure, and key assumptions. It is important to remember that an IOI is non-binding. This means neither party is locked into a deal yet. It is a starting point for further discussions and due diligence.
Real-World Example
The Coffee Shop IOI
Imagine Sarah wants to sell her coffee shop. A potential buyer, Mark, sends her an IOI. In it, Mark states he is interested in buying the coffee shop for a price between $200,000 and $250,000. He also mentions he would prefer to pay 80% in cash and 20% through a seller note. The IOI also lists some conditions, like reviewing the coffee shop's financial records. This IOI is not a promise to buy, but it shows Mark is serious enough to explore the deal further.
Why this matters
An IOI helps both buyers and sellers. For sellers, it helps gauge buyer interest and potential deal terms without committing to anything. For buyers, it allows them to express interest and propose initial terms without the full commitment of a formal offer. It moves the conversation forward and helps decide if a deal is worth pursuing.
An IOI is a good sign, but it's not a done deal. Use it to understand a buyer's initial thoughts on price and structure. But always remember, it's non-binding. Keep your options open until you have a Letter of Intent (LOI).
An IOI is a good sign, but it's not a done deal. Use it to understand a buyer's initial thoughts on price and structure. But always remember, it's non-binding. Keep your options open until you have a Letter of Intent (LOI).
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