What are Term Sheets
A term sheet is an upfront summary of major terms in a contract. It typically summarizes the deal’s business terms, material non-financial obligations, key due dates, and financial arrangements. A term sheet is a contract-specific document, so although it may be used by multiple parties, each party’s specific terms must be included in the document. Most business agreements include detailed terms that are not always available to everyone, especially if the parties are private individuals or businesses that don’t disclose their financial condition. The term sheet provides an initial overview of the deal’s key terms, which allows parties to guide early discussions about contract terms before the negotiation gets too detailed. Once all parties agree on what needs to be included in the agreement, they can more easily reconcile any disagreements about their respective responsibilities.
Additionally, a term sheet allows parties to get a sense of the other’s expectations and requirements. If one or both parties know that their expectations are too high, they may be able to negotiate the price of the deal down to achieve an acceptable compromise.
As a standardized contract term sheet, it’s important that all parties understand their side of the agreement. If one party doesn’t understand their terms, they’re likely to be disappointed with the deal at hand.
Key Elements of a Term Sheet
Fintalent’s Term Sheets consultants identify the following key elements of a term sheet.
Business Terms : These include definitions of important terms, such as parties’ obligations and expectations with respect to pricing, delivery schedules, payment terms, quality standards and warranties.
Obligations and Expectations: These include definitions of important terms, such as parties’ obligations and expectations with respect to pricing, delivery schedules, payment terms, quality standards and warranties.
Non-Financial Rights : These are essentially the parties’ rights in relation to something, much like a legal contract. Common examples of this include what type of information the parties can access, how they can use or share that information, and what obligations or restrictions apply in regards to that information.
Pre-emptive Rights: These are essentially the parties’ rights in relation to something, much like a legal contract. Common examples of this include what type of information the parties can access, how they can use or share that information, and what obligations or restrictions apply in regards to that information. Dispute Resolution : This is used to define liability for obligations not being met within a reasonable amount of time. Common examples include how disputes are to be resolved if they cannot be settled through negotiation.
Liabilities: This is used to define liability for obligations not being met within a reasonable amount of time. Common examples include how disputes are to be resolved if they cannot be settled through negotiation.
Financial Terms : These are generally the most detailed sections of the agreement, detailing all of the financial arrangements. Examples of this would be determining how funds will get paid out, whether payments are due immediately or upon certain events occurring, and what is included in interest payments.
How to Prepare a Term Sheet
While some of the most basic methods for preparing a term sheet for a deal can be through Word or Excel, there is increasing use of specialized document-writing tools and contract templates. These templates automatically fills in some of the more tedious details allowing a business owner focus on important points. While templates and writing tools offer a good alternative, the place of an expert freelance term sheet document curator cannot be overlooked. Fintalent offers a large pool of experienced Freelance financial analysts that can cover every aspect of your business from term sheet preparation to investment management.
