What is a service level agreement (SLA)?
Wednesday, October 14, 2026
A service level agreement (SLA) specifies the requirements that the service provision must meet. This involves, for example, agreements regarding quality, accessibility, and the timeframes within which work is performed or complaints are handled. An SLA can also determine how compliance is measured and what consequences failure to meet the agreements entails, such as a reduction in remuneration or a fine.
For entrepreneurs in the SME and family business sector, these agreements can be important. Especially when the company depends on external service providers or long-term customer contracts. In the event of a business takeover moreover, the obligations under an SLA can affect the valuation. In this blog, you will read about the types of agreements included in an SLA, why they are important, and the role they play in a business acquisition.
How does an SLA work between a client and a service provider?
SLAs are widely used within the IT sector, business services, logistics and facility services. Think, for example, of an IT company responsible for managing business systems or a logistics service provider that makes agreements regarding delivery times.
An SLA is typically a supplement to a service agreement. The latter sets out the general agreements regarding the collaboration, while the SLA elaborates on these with concrete requirements regarding, for example, availability, response times, and the quality of the service. If the service falls short, both parties can rely on the agreements in the SLA.
What agreements are included in a service level agreement (SLA)?
An SLA specifies what the service provider must deliver, within what timeframe, and what quality requirements the service must meet. The exact content varies by sector and service, but a number of elements recur regularly.
1. Availability of services
The agreement specifies when and how often a service must be available. For IT services, for example, it can be agreed that systems are available for at least 99.91 TP3T of the time.
2. Response and recovery times
An SLA describes how quickly a service provider must respond to problems and within what timeframe they must be resolved. A distinction is often made between minor malfunctions and critical problems.
3. Performance indicators (KPIs)
Key Performance Indicators (KPIs) make the quality of service measurable. Examples include customer satisfaction, delivery reliability, and the percentage of reports handled on time.
4. Responsibilities of both parties
The agreement sets out the obligations of the service provider and the cooperation expected from the client. This makes it clear in advance who is responsible for what.
5. Reporting and evaluation
Regularly assessing performance clarifies whether the service provider is meeting the agreements. Any potential problems can then be discussed and resolved in a timely manner. This allows problems to be identified early.
6. Consequences of failure to comply with agreements
An SLA may contain provisions regarding financial compensation, remedial measures, or termination of the partnership if agreed performance standards are not met.
Why is an SLA important for entrepreneurs?
An SLA provides clarity regarding the services your company purchases or provides. It sets out agreements concerning, for example, availability, support, and the consequences if obligations are not met. This is particularly important when your company depends on external service providers.
Clarity and transparency
: By documenting expectations and responsibilities in writing, both parties know what to expect from each other. This reduces the likelihood of misunderstandings and conflicts.
Continuity of business operations
: When a critical system fails, you want to know how quickly the supplier must respond and when the problem is expected to be resolved. An SLA establishes these agreements in advance.
Management of financial risks
: If a service provider fails to meet its agreements, this can have financial consequences. The SLA can specify what compensation or other measures apply in that event.
Strengthening customer relationships
: For companies working with long-term customer contracts, it is important to consistently honor agreements. An SLA helps to assess the quality of this service and to remain in dialogue with customers about it.
What role does an SLA play in a business acquisition?
In a company acquisition, SLAs play a role during the due diligence investigation. In doing so, the buyer assesses, among other things, the term, agreed performance, and any financial consequences if obligations are not met.
Contractual obligations
: A buyer wants to know which performance standards the company has committed to customers and whether these obligations can be met structurally.
Financial consequences
: When SLAs contain high compensation or penalties, this can pose a financial risk. This can affect future cash flows and, consequently, the business valuation.
Dependence on suppliers
: Is the company heavily dependent on a single supplier? Then a buyer wants to know whether the collaboration can be continued after the acquisition and what risks arise if this supplier ceases to exist.
Transferability of contracts
: In the event of a business acquisition, it must be investigated whether existing agreements can be continued and whether a change of ownership gives rise to additional obligations or termination rights.
What should you pay attention to when drafting an SLA?
When drafting an SLA, it is important that agreements are clear and measurable. Therefore, only define performance indicators that the service provider can actually deliver. Overly ambitious agreements can lead to problems or unexpected costs later on. The following points of attention help entrepreneurs when drafting or reviewing an SLA.
Formulate measurable objectives
: Avoid general descriptions such as 'fast service'. Establish concrete performance standards, for example, a maximum response time of two hours for critical failures.
Distinguish between responsibilities
: Describe which party is responsible for specific activities, provision of information, and any remedial measures.
Take financial consequences into account
: Assess whether the agreed services fit within the available capacity and cost structure. Overly ambitious commitments can put profitability under pressure.
Establish exceptions and termination conditions
: Make clear agreements regarding planned maintenance, force majeure, contract duration, and the options for terminating the collaboration.
Evaluate the agreement periodically
: As your business grows or services change, existing agreements may become outdated. Therefore, regularly check whether the SLA still aligns with the activities and obligations of both parties.
By existing SLAs for a sales process By checking this, you prevent unclear or unfavorable agreements from only coming to light during the negotiations.
Why choose Match Plan?
Match Plan guides entrepreneurs through the sale of their business, from initial orientation and valuation to the final transfer. In doing so, we look not only at financial performance but also at contractual agreements that may affect the value and transferability of your company. What we can do for you:
- We guide the entire sales process, from initial strategic exploration and valuation to buyer outreach, negotiations, due diligence, legal advice and the formal transfer.
- With over 30 years of experience, we combine in-depth knowledge of business acquisitions and valuations with a personal approach that aligns with your company and objectives.
- We map the financial and commercial risks of existing SLAs, such as performance obligations, compensation arrangements, and dependencies on key customers or suppliers.
- We coordinate the due diligence investigation and liaise with legal specialists where necessary, so that contractual obligations are carefully assessed and potential bottlenecks are brought to light in a timely manner.
- During the valuation and negotiations, we take into account the impact of contractual agreements on the future profitability and continuity of your company.
Would you like to know what impact existing SLAs and other contractual agreements have on the value and marketability of your company? Feel free to contact us for a no-obligation consultation with one of our M&A advisors.
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