Term Sheets - Internal Benefits

As I mentioned a few weeks ago, if you are a buyer, having a set of key terms means you can say to suppliers “price to this!”...

There are a lot of benefits for producing a set of key terms for a deal, and at some point I will produce a list of them. But today, I’m going to talk purely about three internal benefits.

Benefit 1: they allow you to see the deal in the round. Contracts are typically anything from 20 pages to 100+ pages long and full of verbiage which rarely comes into play. It’s hard to get a real sense of what you are going to sign up to if the deal is spread over that much paper or screen acreage. A term sheet sets out the deal in 2 to 3 pages. That makes it a lot easier to form a clear view of the overall deal.

Benefit 2: It’s not just you, it’s your team that finds it easier to understand the deal in the round. And you can say to them: “this is what we are planning to do – does it make sense from your side of the business?”. The term sheet makes it easier to discuss alternatives, to make sure the whole business is aligned, and gives you the opportunity to flush out problems before they are committed to contract.

Benefit 3: If you’ve taken the trouble to put together a term sheet, and you’ve worked through it with your team, then you will be much clearer in your head about the alternative positions you could have taken, the positions that the other side are likely to ask for, and the trade-offs for each. Which means that, when the negotiating kicks off, you will be much better prepared than the other side.

The ability to think a few steps ahead is no small thing. It gives you the advantage of making better decisions faster than the other side and is a key factor in any negotiation.