Heads of Terms

The buying and selling process can be complicated. But are Heads of Terms necessary?

Heads of Terms can also be known as a Memorandum of Understanding or ‘MOU’ which allows both parties to negotiate and get the main points down in writing.

Although not legally binding, spending time negotiating a detailed Heads of Terms reduces the opportunity to renegotiate later. Once written down these main points are now said to be “agreed” preventing disagreement later and this also provides a guide for the parties’ advisor.Â

Arguably if the other party does not sign this document then is highly likely that they are not actually serious about purchasing your business. This is a signal that they may pull out of the deal in the near future, you do not want to waste your time and money on someone who may do this. So, do not proceed with the sale until the document has been signed.

As the seller by getting the buyer to sign the Heads of Terms you have made them morally committed to buying your business. You are now at a tactical advantage.

This helps you answer the question that they are serious about buying your business, and now due to the buyer not being able to renegotiate in the future, efficiency of selling the business has been created.

So yes, you do need Heads of Agreement as it would benefit you as the seller a great deal.

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