Business Sale Term Sheets: Basics and Structure

There are a few key pieces of documentation that may play a major role in a business sale of any kind, and one that will definitely be considered during this process is known as a terms sheet. The terms sheets represent a prospective buyer's potential offer and some of its basic terms, and is vital for both buyers and sellers to be aware of.

At Utah Business Consultants, our business brokers are here to help clients around Salt Lake City and other parts of Utah with every possible element of selling their business, including terms sheets and other documentation that may arise. In this two-part blog series, we'll discuss the basics on terms sheets, common components included in them, and what to be thinking about for each of these elements.

Terms Sheet Basics

As we alluded to above, terms sheets are a document that outlines the key terms of a prospective buyer’s offer. They may be anywhere from a single page up to 10 pages or more, depending on the complexity of the deal.

There is no singular format out there for a terms sheet, though you may see similarities between them when it comes to common components and elements. They can range from very informal, basic documents up through the more detailed ones with exact numerical figures and specific components included.

The purpose of a terms sheet is to provide both sides – buyer and seller – with an understanding of what the final purchase will entail, should both parties decide to move forward. It's essentially the framework for a definitive purchase agreement that will follow and be built upon, should both sides decide to continue pursuing the transaction.

Our next few sections, and on into part two of our series, will go over some of the key elements of terms sheets and how to think about them.

Sale Structure

In many cases, some of the most important information on a terms sheet will cover how the sale of the business will be structured. This includes items such as whether there is an asset purchase or stock purchase, how much cash and financing may be involved, any provisions for earn-outs, non-competes or other elements that are included in the purchase agreement.

These elements can often have a major financial impact on either side, so it's important to understand each of them and what their implications may be.

In part two of our series, we'll look at some additional elements of terms sheets, and what to keep in mind for both buyers and sellers as they examine different offers. Keep an eye out for the next installment!

In the meantime, contact Utah Business Consultants if you're ready to start the process of selling your business in or around Salt Lake City. Our experienced team is here to help guide you through every step!