Term sheets and letters of intent are two ways that you can lay out your expectations or perspective of a deal without entering into a formal contract. Both involve a written outlining of the key terms and agreements for an upcoming deal, with the main difference being that both parties will typically sign a letter of intent while term sheets are not signed.

While letters of intent and term sheets are not as legally binding as formal contracts, both can be valuable for streamlining and expediting a contract negotiation. 

Why Use a Letter of Intent?

Many business contracts involve drawn-out negotiations over small details that, while important, can delay work and cost businesses in legal fees and lost time. If you prepare a letter of intent or term sheet, you can lay out the key agreements you want to establish early. This provides a template for the full contract, helps to identify the points that you and your counterparty agree on, and can provide security that allows the other party to begin working on the agreed-upon project. 

Term letters or letters of intent are typically written after an initial pitch is done and all concerns from the other party have been addressed. Writing a strong term sheet or letter of intent at the appropriate time clarifies your view of the upcoming deal, strengthens your position and saves on the legal costs of long, aimless contract negotiations. 

Things to Consider

It's crucial that you clearly communicate with the other party whether you intend for the term sheet or letter of intent to function as a binding, pre-contract agreement or a non-binding agreement that's only meant to provide a guideline for future negotiations. Not being clear on this point can lead to legal troubles down the line if one party attempts to use these documents in a way the other party does not intend. 

Another aspect to consider is presentation. In term sheets, letters of intent, and later contracts, presentation is key. Convert a PDF to Word to keep the details of the document consistent through multiple changes. Pay attention to wording, spacing, the length of paragraphs, and the arrangement of the words on the page. A well-drafted letter of intent, term sheet, and contract makes a positive impression on your counterparty as well as any legal council that may review the contract in the future. 

Speed and Security

Business agreements don't have to go from the initial pitch directly to protracted contract negotiations. A term sheet or letter of intent is your opportunity to present your view of the agreement to your counterparty and for them to accept or reject your understanding. It's one valuable tool you can use to get to that final deal. 

Another tool that can benefit you in easing contract negotiations is getting to know other local business owners early. It's much easier to negotiate deals with people you know and trust.

Join your local chamber of commerce today to start building trust with business professionals in your area.