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How to Sell a Business: The Offer
Types of Offers
Choosing the right type of offer for your business sale
Term Sheet - A term sheet is used for discussion purposes only. This allows you to focus on the structuring of the deal without worrying how it looks on paper. If you can agree on the term sheet, then you can move straight to an offer to purchase, or a definitive purchase agreement.
We have combined our term sheet and offer to purchase into one simple form. This is a simple document that can be signed. This also allows the parties to focus on the deal without worrying about the language.
We see many sellers make the mistake of picking up the phone and calling an attorney before they even have a real deal. The issues here can be varied and it pays to have an experienced individual look at the deal. Call us anytime. We do not charge to review your deal. Our fees for closing the transaction can be as low as 1%, oftentimes, with no fees until the actual closing.
Letter of Intent - Letters of intent are similar to term sheets and can be an effective tool if used properly. Again, they are great for discussion purposes, however, they should be replaced by a binding offer if you are committing to the buyer. We see many sellers accept an open-ended letter of intent (no expiration date or termination rights on their part) without accepting an earnest money deposit or qualifying the buyer. This is a huge mistake and can cost you dearly if you commit to the wrong buyer.
Offer to Purchase - Offers to purchase range in length. We have combined our term sheet and offer to purchase into a one-page form. Obviously, this shorter document does not contain all of the necessary language, however, it does allow the parties to commit to the terms and move the deal forward. It is very important that a shorter offer to purchase form, letter of intent, or term sheet be replaced by a more comprehensive offer to purchase.
The language we use typically looks like this:
“Seller and buyer agree to replace this offer to purchase/letter of intent with a definitive purchase agreement within five business days of acceptance”.
What is a definitive purchase agreement? This is the document that is actually signed at closing. This is a comprehensive agreement that is signed at closing by all parties. It may not make sense to start the process with this document as it may intimidate some buyers and may also be unnecessary if the buyer is not qualified. As we mentioned above, it may make sense to start the negotiations with a term sheet/letter of intent or a simple one-page offer form.