Every business needs contracts. Whether it’s an investment deal, a partnership, a vendor, a client agreement, or anything else, the exact relationship will determine your business’s trajectory for years to come. Here are five deal terms that are critical for every business owner to get:
1. Equity and Who Owns What
When you give someone equity, you’re giving them a share of your business. That might also mean giving up part of your profits and your decision-making power.
Even if it seems small now, giving away 10% or 20% adds up over time. You need to be clear about how much you’re offering and what that person gets in return. Do they get voting rights? A say in how the company grows? Or just a cut of the profits?
Think about your plans too. The structure of your ownership can influence your taxes, determine who receives payment in a sale, and determine who makes the final decisions. Please ensure that today’s deal does not limit your opportunities in the future.
2. Term Sheets – The First Step
Before anyone signs any official contracts, this terminology sheet specifies the main outlines of the financial value, equity, timelines, and trade expectations of your organization. This document is not a final agreement but rather a preliminary arrangement.
So don’t rush off over it. Go through each point thoroughly and ask questions if that appears to be misleading or dangerous. If you discover problems soon, this saves frustration, time, and energy afterwards. Please review the term sheet daily.
3. Valuation – What’s Your Business Worth?
Valuation is basically the price tag on your business. It tells investors how much your company is worth right now, which then affects how much of it you need to give up in exchange for money.
There are different ways to figure out valuation. Some look at how much cash your business is expected to make. Others compare it to similar companies in your space. Whichever method you use, make sure it fits where your business is today—not just where you hope it’ll be in five years.
4. Rights, Rules, and Responsibilities
Deals often have a lot of rules. Some of them give the investor extra rights, like putting them on your board or letting them see your company’s secrets. Others limit you, like saying you can’t work with a competitor or that you have to meet certain goals. These rules have to be written out clearly.
If something seems unclear or can be twisted to mean something else, fix it before you sign. If not, it can cause fights in the future, and no one wants to argue in court over something silly. Make sure you know what you’re signing up for.
5. Exit Plans and What Happens If Things End
This section is where you all agree on what should happen when one of you wants out—sell their shares, end the contract, or shut down the business. You do not want to be figuring this out mid-crisis, so do it in advance.
Agree on how much notice someone has to give, how the leaving person’s share will be valued, what to do if the goals are not reached, etc. Having a clear exit plan protects your relationships and saves you from messy breakups. It is not the plan to fail, but the plan for when you are smart.
Make Deals That Actually Work for You
Good deals aren’t just about speed—they’re about making sure things are clear, fair, and built to last. When you understand the basics, you set yourself up for smarter decisions.
Take your time. Don’t rush into agreements you don’t fully understand. Ask for help when you need it, and don’t be afraid to walk away if something doesn’t feel right. The best deals are the ones that help your business grow—not the ones that leave you stuck later.
