Selling a business
What Should You Expect from Term Sheets?
What a term sheet is, how it differs from a letter of intent, what it usually covers and how to respond before you sign anything.
By Michael D. Rubin, CEO & Founder · Updated September 2026 · 714 words
A term sheet is a short, mostly non-binding summary of the main terms on which a buyer proposes to acquire your company: what is being bought, the price, how it will be paid and the conditions for closing. It often comes before, or takes the place of, a letter of intent. It is not the final contract, but the terms in it tend to set the frame for everything that follows, so it deserves careful reading.
Many owners see a term sheet for the first time when a buyer sends one with little warning. Knowing what to expect lets you respond thoughtfully instead of reacting to the headline number, and helps you spot the terms that matter most.
Term sheet or letter of intent: what is the difference?
The two documents do similar jobs, and buyers use the names in different ways. A term sheet is usually a bullet-point outline, sometimes a single page and sometimes several. A letter of intent (LOI) is usually a fuller document written as a letter and signed by both sides. Both are generally non-binding on price and deal terms, but either can include binding provisions, most often exclusivity, which stops you from talking to other buyers for a period, and confidentiality.
Some buyers send a term sheet first to test your reaction before committing to an LOI and the expense of due diligence. Others skip the term sheet entirely. Because the binding parts can restrict you, read either document with your transaction attorney before signing.
What a term sheet typically covers
| Term | What to look for |
|---|---|
| Price and what is purchased | Whether the buyer is buying assets or ownership interests, and what is excluded |
| Payment structure | Cash at closing versus a seller note, an earnout or an equity rollover |
| Working capital | The target level of receivables and inventory, net of payables, left in the business |
| Your role after closing | Length and pay of any employment or consulting agreement |
| Non-compete | Duration, geography and scope |
| Due diligence and timing | What the buyer will review and the target closing date |
| Exclusivity | How long you must stop talking to other buyers |
| Conditions | Financing, approvals and other requirements before closing |
The payment section deserves the closest reading
The headline price is rarely paid entirely in cash at closing. Term sheets often combine cash with a seller note, where you lend part of the price to the buyer and are repaid over time; an earnout, where part of the price depends on future results; or a rollover, where you keep a stake in the new company. Each changes how much you actually receive and when, and each carries a different kind of risk.
Read the definitions as well as the numbers. An earnout measured on revenue behaves very differently from one measured on profit, which the buyer will control after closing. Our guide on how to compare offers shows how to put different structures side by side.
How to respond to a term sheet
A term sheet is an opening position, not a final word. A clear, well-reasoned response often improves the terms and tells the buyer they are dealing with a prepared seller. Before you reply:
- Do not sign quickly because the price looks good; check the structure and the conditions first.
- Ask exactly which provisions are binding and how long exclusivity lasts.
- Compare it with other offers, or consider whether other buyers should be invited before you commit.
- Push for specifics where terms are vague, such as the working capital target or earnout measures, because vagueness becomes a negotiation later, when your leverage is lower.
- Keep your CPA involved on the tax effects of the proposed structure, and see what happens after a letter of intent for the steps that follow.
How MDR & Associates handles term sheets and offers
MDR & Associates negotiates multiple letters of intent at the same time, so you see competing proposals side by side rather than one in isolation. We have a fiduciary duty to present every offer to you in person and explain its structure, and you decide whether to accept, reject or counter. That is step seven of our process, and we work alongside your own transaction attorney throughout. If you already have a term sheet in hand, contact us for a confidential review.
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Questions owners ask next
Can I negotiate a term sheet?
Yes, and you should. It is a proposal, not a final contract. Price, payment structure, exclusivity length and your transition role are all commonly negotiated. It is far easier to settle the key points now, while buyers are competing, than after you have agreed to exclusivity.
Does signing a term sheet commit me to sell?
Generally not on price and deal terms, but check with your attorney. Provisions such as exclusivity, confidentiality and sometimes expense reimbursement can be binding, and exclusivity in particular limits your options for a set period.