When you have found a business you want to buy, the next step is to make an offer to the seller. The offer can be in the form of a binding purchase contract, but more often it is a non-binding Letter of Intent or a Terms Sheet.
A Letter of Intent or a Terms Sheet is not a binding contract and will not contain all the provisions of a Purchase and Sale Agreement. Its purpose is to begin the discussion of the major terms of agreement — to focus both buyer and seller on the important issues and, ideally, to come to mutually agreeable terms. These terms are then incorporated into a purchase and Sale Contract prepared by the seller’s or buyer’s attorney.
So, what should be included? As business brokers, we believe the following elements are the minimum:
- Identification of seller and buyer.
- Purchase price and terms.
- Identification of assets being purchased.
- How inventories will be valued.
- Any liabilities to be assumed by the buyer.
- Lease or purchase of any real estate involved.
- What contracts and/or warranties are to be assumed.
- Schedule for due diligence and closing.
- Buyer responsibility for employee contracts and/or severance agreements.
- Any contingencies, such as financing, licensing, franchisor approval, etc.
Each business has its unique issues; your business broker can assist in identifying them and suggesting ways to deal with them. In Lexington Kentucky, see The Pulliam Company business brokers when buying or selling a business — we get deals done!