Why follow this advice? Because when You consider the reasons for entering into an LOI first, as generally described below, it will be clear to You that You want and need your own customized LOI.
1. You are Strongest, and Have the Most Negotiating Leverage, at the LOI Stage of the Transaction.
If You immediately give a potential buyer contractual exclusivity (pursuant to which You will only be allowed to negotiate the sale of your business with that particular buyer), You will have given up a lot of your bargaining leverage. You will no longer be able to have potential buyers compete against one another, which competition can often drive-up the sales price for your business and improves other sales terms for You.
If You immediately provide a potential buyer with the due diligence materials related to your business You may irreparably harm yourself. Due diligence material disclosure (other than the disclosure of the financials of your business, which is typically shown to a potential buyer very early) usually occurs prior to or concurrently with negotiating the definitive sales agreement. Buyers often delay negotiations while they digest the due diligence materials, which materials the buyer will use to "beat You down" to obtain a low(er) sales price and better Transaction terms from You. You may not even understand how you have suffered in the Transaction, since virtually none of your Transaction terms will have been previously agreed upon.
If You immediately start negotiating a definitive sales agreement (which is usually prepared by the buyer), You will be reacting to what the buyer wants. You will have already set the stage for Transaction term compromises that will not benefit You. After You have spent a lot of time negotiating Transaction deal points, You could become overly invested -- both emotionally and financially -- in the Transaction. Your negotiating leverage might not be as strong as it earlier was. If you "walk away" (which typically will become harder and harder for You to do), You will give up all the emotional time and energy and all the money You spent negotiating the Transaction. You may feel somewhat trapped, and forced to accept Transaction terms that You do not want in order to simply move forward so as to not lose your investment of prior time and money.
How can You avoid all of these situations that will be harmful to You? Easy! You can avoid all of these bad situations by providing your potential buyer(s) early on with a front-loaded LOI that You have prepared which contains all of your preferred Transaction terms.
With a front-loaded LOI You can determine early, before you have selected and agreed to exclusivity with one potential buyer, whether the buyer(s) will give you acceptable Transaction terms. You can require multiple buyers to compete on both Transaction and financial terms. A buyer marking up your LOI does not have to know how many other potential buyers there are. Through an LOI You can "lock down" the terms of your Transaction as much as possible before You (i) select your preferred buyer and give away negotiating exclusivity, (ii) disclose your due diligence materials to your preferred buyer (which is especially important if that buyer is in the same industry and is a competitor), and (iii) negotiate your definitive sales agreement with your preferred buyer.
Remember, as a seller You are strongest, and have the most negotiating leverage, early on at the LOI stage of the Transaction. This is why the most experienced EXIT STRATEGISTS encourage their clients to create their own customized term sheet and include it in their LOI.