If you want to sell a business, potential buyers want to know what kind of business they're in. A sales memorandum tells the buyer what they want to know; think of it as a kind of sales brochure for your business. But beware, this is only for seriously interested parties.
The purpose of the document
The purpose of the information memorandum, also known as the bid book, is to adequately inform prospective buyers. The buyer gets a good picture of your business and can weigh up whether it's an interesting deal, or not. The detailed company details are included so that the potential buyer becomes immediately excited.
Content of the sales memorandum
A sales memorandum is basically form-free and quite easy to put into a jacket. The complete document often contains no more than ten to twenty pages, making it easy to go through. In doing so, it is helpful to include a summary for the reader to scan.
Including an asking price is fine, but is absolutely not a requirement and can even work against you. When the price is on the street, this is often the maximum yield immediately, as this price psychologically acts as an anchor for the rest of the price negotiations.
After all, nobody knows your business as well as you do, so include the following information extensively in the document:
- History and background of the business;
- Business and market activities;
- Customer profiles and revenue segmentation;
- Financial ratios and summary financial statements;
- Projections for the future of the business;
- Legal structure and ownership;
- Organizational structure and workforce;
- Other items, such as housing, business assets;
- Intellectual property, lawsuits or awards/awards/markings;
- Reason for business sale and conditions, such as what is being sold, when will it be sold, at what price will it be sold, how should it be paid, and any seller involvement after transfer.
Confidentiality agreement
It is wise to have potential buyers sign a non-disclosure agreement before you hand over the sales memorandum. Include in the agreement that in case of unauthorized use, the prospective buyer must pay a fine.
In general, a non-disclosure agreement does not yet include exclusivity: you are free to talk to other prospective buyers as well. A non-disclosure agreement is not foolproof; it is primarily a gentlemen's agreement.
