Don’t overlook the value of the term sheet. The term sheet is often used before the creation of an actual purchase or sale agreement. Here is a closer look at the term sheet and why it is important.
What Is A Term Sheet?
Term sheets are rarely mentioned in books about the M&A process. Russ Robb, author of the book, Streetwise Selling Your Business, defines term sheet as, “Stating a price range with a basic structure of the deal and whether or not it includes real estate.”
Attorney and author, Jean Sifleet, states that a term sheet serves to answer four key questions: Who? What? Where? How Much?
Creating The Right Environment
A good term sheet can keep everyone focused on what is important and can help keep negotiations on target. The main goal of a term sheet is to maintain a “win-win” environment.
If a seller and a buyer have a verbal agreement on price and terms, it is important to put that agreement down on paper. This can lead to a more formalized letter of intent. The term sheet functions to help both parties, and their advisors, take the deal from verbal discussions to the next level.
Make Sure Your Term Sheet Has The Right Components
A term sheet is essentially a preliminary proposal containing a variety of key information. The term sheet outlines the price, the terms and any major considerations. Major considerations can include anything from covenants not to compete to consulting and employment agreements.
Term sheets are a valuable tool. They can yield impressive results and help streamline the selling and buying process. An array of misunderstandings can be avoided through the proper use of term sheets. This can help increase the chances of successfully finalizing a deal.
The process of buying or selling a business requires dedicated, professional attention. EBIT Associates will save buyers and business owners money by helping them avoid costly mistakes, effectively market the appeal of the seller’s business, and maximize exposure to serious, qualified buyers – all with confidentiality.