Heads of terms for a business sale

Heads of terms record the main proposed commercial terms before the full transaction documents. They should identify the parties, structure, price basis and key conditions. State clearly which provisions are intended to be binding and obtain advice on the wording rather than assuming the document's title decides its effect.

Confidentiality, exclusivity and costs can create commitments even while the main sale remains subject to contract. Define the period and conditions of any exclusivity. Avoid a headline price that leaves working capital, debt, cash or deferred consideration entirely unexplained.

Agree the commercial framework with enough precision

Identify the intended buyer and seller, proposed structure and subject matter. State whether the transaction concerns shares, selected assets or a business division. A headline agreement to buy the business can hide different assumptions about cash, debt, property and customer deposits. Use a short schedule or clear definitions to show what is included and what remains to be negotiated.

Describe how the price works rather than recording only one attractive number. Identify cash at completion, fixed deferred amounts, any earn-out and the intended adjustment mechanism. A cash-free, debt-free description still needs an agreed approach to working capital and the relevant balance definitions. Use Deferred consideration and payment risk for deferred payments and Completion accounts and price adjustments for completion adjustments when these features materially affect what either party expects to receive.

Distinguish intended commitments from negotiation points

Ask the drafting adviser to make the intended legal status clear. Heads of terms can contain provisions intended to bind, such as confidentiality, exclusivity or costs, while the main acquisition remains subject to contract. The result depends on wording and circumstances; do not assume a document is non-binding merely because it is called heads of terms. Check the signature and approval arrangements for the provisions that are intended to take effect.

Define exclusivity by duration, covered activity and any conditions or extension mechanism. Consider what the buyer must do during that period and what happens if funding or diligence stalls. The seller should understand the commercial cost of being unable to pursue alternatives. Avoid an open-ended restriction that continues automatically because nobody has defined how negotiations formally end.

Align the timetable with real dependencies

List key diligence, financing, consent and approval milestones. Include access to information and the proposed responsibility for preparing documents. A target completion date is useful for coordination, but it should not disguise dependencies outside the parties' control. If a landlord, lender or regulator must act, identify that early and avoid representing their approval as a formality before their requirements are known.

Agree who pays advisers and third-party costs, including what happens if the deal does not proceed. Distinguish each party's own costs from shared expenditure and exceptional termination arrangements. A sentence about costs can create a significant commitment even where the main purchase is still being negotiated. Keep internal approval aligned with the actual exposure rather than only the hoped-for final transaction value.

Protect the diligence and communication process

Set rules for contact with employees, customers and suppliers. The buyer should not independently approach a key customer before the seller has agreed a suitable process. Confidentiality should address permitted use and recipients, with separate consideration for personal and competitively sensitive information. The government-supported business guidance on preparing a final contract describes heads and diligence as parts of the wider sale process. ^[1]

Record matters deliberately left open so later drafting does not silently choose an outcome. For example, tax allocation, transition support or restrictive covenants may need specialist advice before the parties can agree them. Revisit the heads when a material change occurs, such as switching from shares to assets. Old assumptions should not continue to guide the price or timetable after the proposed transaction has changed fundamentally.

For Business sale document review, bring the offer, ownership details and the points already discussed orally. Identify the seller's future plans and the buyer's financing assumptions. Ask for a document that distinguishes settled principles, binding commitments and open issues. That clarity helps both teams use detailed drafting to complete the bargain rather than discover that the parties agreed different transactions under the same headline price.

Write down the assumptions behind the timetable

A proposed completion date may depend on lender approval, landlord consent or access to financial records that the seller has not yet assembled. List these dependencies beside the timetable and ask the relevant owner whether the proposed dates are realistic. Distinguish a target date from a commitment that creates consequences if missed.

Review how a delay affects exclusivity, adviser costs and access to the business. The parties may need a way to discuss an extension without creating uncertainty about which existing obligations continue. Keep any agreed change in the controlled negotiation record rather than relying on an informal conversation. This helps avoid a situation where one team believes negotiations remain exclusive while another has resumed discussions with alternative buyers.

Illustrative scenario

A seller agrees a price in principle and later discovers that the buyer assumed a specified level of working capital would remain in the business. Clear heads would have identified that assumption and the proposed adjustment mechanism. The parties resolve it before spending heavily on detailed documentation.

Preparation checklist

• Identify the transaction structure and exact parties.
• Explain price assumptions and any deferred amount.
• Mark intended binding provisions expressly.
• Set realistic conditions, responsibilities and timetable.