When working with a specialist business broker such as Redwoods Dowling Kerr to sell your healthcare business or childcare business, the Heads of Terms document represents a critical milestone in your exit journey. Although typically not legally binding, it forms the basis of the entire transaction and sets out what both parties have agreed in principle before moving into due diligence, legal drafting and the final stage of negotiations.
This guide outlines ten key areas that sellers of healthcare businesses and childcare businesses should understand, question and safeguard when preparing or reviewing Heads of Terms.
1. Confirm the Parties Involved
The document should clearly identify the correct legal entity you intend to sell. This is particularly important for healthcare business and childcare business sales where you may own multiple settings/sites or operate within group structures. Your business broker should verify that the entity matches the one holding critical registrations such as CQC registration for healthcare businesses or Ofsted registration for childcare businesses.
This avoids unnecessary complications later in the process and ensures that all relevant subsidiaries, trading names, and operational entities are correctly documented.
2. Agree the Proposed Purchase Price
The price agreed at this stage should be recorded along with the valuation methodology behind it. Healthcare businesses and childcare businesses are typically valued using sector-specific multiples of EBITDA, turnover ratios, or bed/place-based calculations. Your business broker should explain which approach has been applied and ensure it reflects current market conditions.
If the figure is subject to due diligence adjustments, this should be made plain so that you understand the price may not be final. Any factors that may influence the eventual figure – such as CQC ratings, Ofsted grades, occupancy levels, or staff retention – should be noted to maintain transparency and shared expectations. Your business broker can help protect you from unreasonable price reductions by including materiality thresholds for any adjustments.
3. Clarify the Payment Structure
The document should provide a clear breakdown of how the consideration will be paid for your healthcare business or childcare business. This may include deposits, completion payments, deferred sums, retention amounts or earn-out provisions linked to future performance.
Understanding the structure early is crucial as a business seller. Cash on completion provides certainty, whilst deferred consideration may achieve a higher headline price but carries risk. Your business broker can advise on market-standard payment structures and help you assess the trade-offs. If the buyer proposes deferred payments or earn-outs, ensure the terms are clearly defined with specific performance metrics, payment dates, and dispute resolution mechanisms.
4. Set Out Conditions for Completion
Any requirements that must be satisfied before completion should be clearly set out.
For healthcare business sales, these may include maintaining CQC registration, securing landlord consent for lease assignments, and obtaining necessary regulatory approvals. For childcare business sales, conditions typically include maintaining Ofsted registration and securing local authority approval for funded places.
Other conditions might include the buyer securing finance, completing due diligence satisfactorily, or transferring key contracts. Clear conditions help protect your position as the seller by establishing realistic expectations and providing a framework for what happens if conditions cannot be met. Your business broker should ensure conditions are reasonable and achievable, with appropriate timeframes specified.
5. Include Robust Confidentiality Provisions
As the seller of a healthcare business or childcare business, confidentiality is paramount. Disclosure of a potential sale could unsettle staff, parents, service users, or commissioning bodies, potentially damaging your business value during the sales process.
Confidentiality obligations should be reasonable and mutual, allowing the buyer to share information with their professional advisers whilst protecting your sensitive business information. A good business broker will typically control information flow carefully. The provisions should survive termination of the Heads of Terms, protecting you even if the transaction doesn’t proceed, and should include practical arrangements for returning or destroying confidential information if the deal fails.
6. Agree an Expected Completion Timeline
A realistic timeline helps you coordinate your exit planning, transition arrangements and future commitments. While the date is only an expectation at this stage, it should allow sufficient room for due diligence, regulatory notifications, and any potential challenges.
Consider seasonal factors. Many childcare business sales are completed before a new term begins for a smoother transition. The timeline should identify key milestones and account for CQC or Ofsted notification periods where required.
7. Negotiate an Exclusivity Period
An exclusivity clause prevents you from negotiating with other interested parties for a set period, giving the buyer security to undertake detailed due diligence. However, as a seller, you need this period to be balanced – long enough for the buyer to complete checks, but not so long that you’re tied up indefinitely if they fail to progress.
The exclusivity period should protect the buyer’s investment in due diligence whilst ensuring you’re not prevented from exploring other options if the deal stalls.
8. Clarify Assumptions Behind the Deal
If the buyer’s proposed price or structure is based on assumptions relating to turnover, staffing levels, occupancy rates, contract values, or asset conditions, these assumptions should be written into the Heads of Terms. For healthcare business sales, this might include assumptions about bed occupancy, CQC ratings, or staff retention. For childcare business sales, assumptions might cover enrolment numbers, Ofsted grades, or the mix of funded versus private places.
Including these assumptions protects both parties. It gives you clarity on what the buyer expects and provides a framework for addressing discrepancies discovered during due diligence. Your business broker can ensure assumptions are realistic and based on accurate historical data, preventing disputes later in the process.
9. Establish the Intent and Commitment of Both Parties
Heads of Terms reflect the genuine intention of both sides to proceed with the sale of your healthcare business or childcare business. The wording should indicate serious commitment from the buyer, including their obligation to progress due diligence diligently, provide timely responses, and work cooperatively toward completion.
Consider whether the buyer has demonstrated financial capacity and whether they’ve committed to reasonable timeframes for each stage. Your business broker can assess whether the buyer is genuinely committed and motivated or simply tying up your business whilst they explore other options. The document should clarify expectations around information provision, access to premises, and cooperation with advisers to ensure the process moves forward efficiently.
10. Take Professional Advice Before Signing
Even though the Heads of Terms document is generally not binding, it shapes the foundations of the final contract and sets the commercial framework for your healthcare business or childcare business sale. Taking legal and financial advice from professionals experienced in business sales ensures you’re not agreeing to unfavourable terms that could reduce your sale proceeds or create post-completion liabilities.
Your business broker can guide you through the commercial aspects, but independent legal advice on areas such as warranties, indemnities, and restrictive covenants is essential. Professional advisers can identify potential issues early and strengthen your negotiating position. They can also ensure the Heads of Terms align with your broader exit strategy and personal objectives.
If you are working with a business broker to sell your healthcare business or childcare business, taking time to ensure your Heads of Terms are properly structured will place you in a stronger and better protected position throughout your negotiations and ultimate exit from the business.
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