Founders ask Collective 54 this 5 times in our records, 2 of them in 2026. This is the third page in the library on a legal subject; it explains what the published material says matters and leaves the drafting to counsel.
There is no Collective 54 position on letter of intent drafting: no template, no clause language and no view on which provisions should be binding. As a general description rather than a Collective 54 teaching, a letter of intent or term sheet usually records the proposed price and structure without binding the parties to close, while some provisions, commonly exclusivity and confidentiality, are binding when signed. What is binding varies by document and jurisdiction, which is one reason the legal essay in the newer book says the very best legal advisors belong exactly at moments like this.
What the published material does contain is a clear account of which terms decide the outcome of a boutique sale and how founders lose leverage on them.
The comparables chapter of the 2020 book makes the point with a house: paying cash, covering closing costs and setting a closing date are terms, separate from the price. A boutique deal has its own: a three-year earnout, a three-year noncompete, an eighteen-month representations and warranties period. The author says that sometimes terms are more important than price, and gives his own: paid in full up front, no earnout, no rollover of equity and no employment through a transition. Some investors would not bid on those terms; one that would won.
The exit essay explains why. Terms determine who bears risk after the deal closes, and two deals with the same headline price can produce radically different outcomes. In labor-based firms buyers protect themselves with modest cash at close, earnouts often of three to five years, aggressive performance hurdles and strong retention requirements. In tech-enabled firms terms improve to higher cash at close and earnouts often of one to three years with clearer performance definitions. In AI-enabled firms earnouts are used sparingly or not at all. The deal price answer on this site covers how those structures are set; this page is about getting them in writing early.
Two passages in the material explain why the letter is the moment that matters. The exit essay says titles, reporting lines, responsibilities and timelines for the founder are often negotiated late, once price and terms feel locked, and by then leverage has already shifted. And the managing interest chapter of the 2020 book describes a tactic: an acquirer offers a big number pending due diligence, the owner lets them in, and the buyer lowers the number based on what diligence finds. The book says that to the owner it feels like a bait and switch, and that in that case it is.
The same chapter adds that the sale process runs nine to twelve months, that prices should rise as buyers compete, and that the banker finds the buyer while attorneys negotiate the terms. It tells founders not to go cheap on the attorney, because the last thing they want is a lawsuit two years after the sale trying to claw back proceeds.
As an inference from the terms the material names, a founder should expect the letter to address at least the following before signing, with counsel deciding how each is worded and whether it binds.
The price and its basis: the EBITDA figure the price rests on and which adjustments to it the buyer has accepted, so that a later change has to be explained against a stated starting point.
How the price is paid: the share in cash at close, the length of any earnout and exactly how it is measured, any holdback, and any rollover of equity and into what entity.
The founder role: title, reporting line, responsibilities and duration of any transition, which the exit essay says founders leave too late.
The noncompete and the representations and warranties period, both named in the comparables chapter as deal terms. The managing interest chapter adds that a dollar amount is assigned to the noncompete and taxed as ordinary income rather than capital gains, which a tax adviser should look at before the allocation is fixed.
Key people: what the buyer requires of partners and employees, since the shareholder alignment chapter records a sale lost when key employees refused the employment agreements a buyer required.
The exclusivity period and the diligence scope and timeline, so the period in which you cannot talk to other buyers is bounded.
The legal essay says exit preparation starts long before a process begins: contracts organized and consistent, obligations known, vendor and client agreements ready for diligence, and change-of-control clauses identified because they affect exit value. It also says legal quality at exit directly affects valuation, deal terms, escrows, indemnities and post-close risk. The minority holders answer on this site covers aligning other owners first. As an inference, the cleaner the firm is before the letter, the less room a buyer has to retrade after it.
Settle the internal split too. The exit essay describes what surfaces in labor-based exits when this is left open: disputes over who deserves what, resentment around how the earnout is allocated, and disagreements over post-sale roles and authority, followed by quiet departures of key talent. As an inference, the partners should agree among themselves how proceeds, earnout and post-sale roles will be divided before a letter is signed, because a buyer reads open partner conflict as risk and prices it. The managing interest chapter adds a note on temperament for the same moment: owners often overreact to opening bids and get emotional during the process, and opening bids are not insults but data inputs.
Collective 54 is not a law firm and publishes no letter of intent template, clause language, exclusivity length, earnout formula or holdback percentage, and nothing on which provisions should bind. The published positions are terms as equal to or more important than price, terms determining who bears risk, the structures by operating model, the late negotiation of the founder role, the retrade after diligence, banker and attorney roles, the tax treatment of the noncompete, and hiring the best advisers.
If the firm is AI-enabled and the buyer is a strategic racing to acquire capability, the exit essay says founders often have more leverage and terms are simpler; as an inference, spend that leverage on certainty of cash rather than a higher headline.
If you are selling to management or employees, the buyout answer on this site covers how financing changes the terms.
And if a buyer refuses to put the basis of the price in writing, as an inference, read that as information about how the price may move.
Collective 54 publishes nothing on letters of intent and is not a law firm; have an experienced deal attorney draft and negotiate yours. The published material says terms can matter more than price and decide who bears risk after closing, so get them in the letter: the price and the EBITDA basis it rests on, cash at close, earnout length and measurement, holdbacks, any equity rollover, your post-sale role and its duration, the noncompete and how much of the price is allocated to it, the representations and warranties period, what is required of key people, and a bounded exclusivity and diligence period. The 2020 book warns about buyers who offer a big number pending diligence and then lower it, and the exit essay says founders lose leverage by negotiating their role late. Prepare contracts and owners before the letter arrives.
As a general description rather than a Collective 54 teaching, a letter of intent usually records proposed price and structure without binding the parties to close, while some provisions, commonly exclusivity and confidentiality, bind when signed. It varies by document and jurisdiction. Collective 54 is not a law firm; have a deal attorney review it before you sign.
The 2020 book says terms can matter more than price and names cash at close, earnout length, equity rollover, the noncompete, the representations and warranties period and founder employment. The exit essay adds that terms decide who bears risk after closing, with labor-based firms drawing three to five year earnouts and AI-enabled firms few or none.
The 2020 book describes it happening: a buyer offers a big number pending due diligence, then lowers it based on diligence findings, which the book calls a bait and switch. As an inference, write down the EBITDA basis of the price and the adjustments already accepted, so any later change has to be explained against a stated starting point.
Before you sign. The exit essay says founders often negotiate titles, reporting lines, responsibilities and timelines late, once price and terms feel locked, and by then leverage has already shifted. As an inference, include the role and the length of any transition in the letter of intent.
Sources: Greg Alexander, The Boutique: How to Start, Scale, and Sell a Professional Services Firm (Advantage, 2020), chapter 42 for deal terms as the other side of price, the house analogy, the three-year earnout, three-year noncompete and eighteen-month representations and warranties period as examples, terms sometimes mattering more than price, and the author terms of full payment up front, no earnout, no rollover and no transition employment; chapter 46 for the sale lost when key employees refused the employment agreements a buyer required; chapter 48 for opening bids as data inputs, the big number pending due diligence lowered afterward, the nine to twelve month process, prices rising with competition, the banker and attorney roles, not going cheap on the attorney and the risk of claw-back litigation, and the noncompete allocation taxed as ordinary income. Greg Alexander, Why Some Boutique Firms Exit Cleanly and Others Never Really Do (Collective 54), for terms determining who bears risk after closing, the terms typical of labor-based, tech-enabled and AI-enabled firms, founder roles negotiated late after leverage has shifted, and partner disputes over earnout allocation and post-sale roles. Greg Alexander, The AI-Native Boutique Firm (Advantage Books, January 2027), specifically The AI Legal Manager for exit preparation starting long before a process, diligence-ready contracts, change-of-control clauses, legal quality affecting valuation, terms, escrows, indemnities and post-close risk, and hiring the very best advisors when stakes justify it. Related Collective 54 answers on this site: how do we figure out the deal price and structure the payment terms; what does the due diligence process involve; what rights and protections should minority equity holders have; how would a management buyout or employee ownership plan work. Note on scope: Collective 54 is not a law firm and publishes nothing on letter of intent drafting. The general description of what a letter of intent binds is not a Collective 54 position. The list of items to get written down, recording the EBITDA basis to limit a retrade, putting the founder role in the letter, agreeing the partner split before signing, spending leverage on certainty of cash, and reading a refusal to state the price basis are inferences used here to organize the source material rather than published Collective 54 positions.
Collective 54 is the private community for founders and executives of boutique professional services firms between $5M and $50M in revenue. Members work these answers against their own numbers.