As you prepare to present your business to prospective buyers, you’ll need to create a thorough written overview of your business and why it’s a good purchase prospect. This document, which is referred to as a selling memorandum, confidential description book or offering memo, is significant because it provides prospective buyers with their first insight into your business and its potential for future profit.
The degree of detail contained in your selling memo depends on the size and complexity of your business. If your business is small, uncomplicated, and likely to sell for under $200,000, then you can probably reduce this down to a one page terms sheet that includes a description of your business, its financial information, price and terms. Yet, if your business is large and complicated, your selling memo will likely be considerably longer in order to properly explain your offering and its higher price.
What Should Be Included In a Selling Memo?
Your selling memo should present the facts about your business, such as earnings and asking price, without disclosing complete financial information. It should be truthful and accurate, as you’ll need to warrant the accuracy of all information before the sale closes. In short, it should strike a balance between providing facts about your business while inspiring prospective buyers to take the next step and contact you.
Here’s what to include in a selling memo for a business that is expected to sell for over $200,000:
- Table of contents for memos longer than 4 or 5 pages.
- Summary for memos longer than 10 pages.
- Business description
This should include an outline of your business’s history, structure and ownership, as well as a description of its products, staffing, markets and operations. Financial information should include your business’s annual sales and earnings. You’ll also want to explain why you’re selling your business, and highlight its strong points.
including the geographic location, a description of the building, and lease information.
- Business Strengths
This is an opportunity to list your business’s strengths and any advantages it has over its competition. Accurately list the challenges it faces while outlining how these challenges may provide opportunities for growth.
- Competitive Overview
Describe your business’s competitive position within its industry and its advantages. Also, list the number of competitors it has without listing the names.
Write a short description of the goods and services that your business provides, including a product list and sales trends. Take this opportunity to highlight any unique products or services that your business offers.
Provide information on your hours of operation and seasonality Include a list of your operating equipment, a list of your inventory, plus an overview of your production processes and staffing.
Present industry and geographic growth trends. Include descriptions of customer profiles from client lists, the competition, and your company’s position within its industry. Outline your marketing strategy and potential marketing opportunities.
- Key Management and Employees
Include job titles and descriptions, compensation, benefits and credentials, length of employment and information on contracts, but omit employee names.
- Future Plans/Growth Projections
Outline opportunities for growth including the investments in time, finances and staff required to manifest them.
- Potential Buyer Concerns
Address any issues that might concern potential buyers with business, marketing or transition plans designed to overcome those issues.
- Financial Information
Provide a statement of your accrual or cash based accounting method, as well as one-line summaries of your revenues, net income and seller’s discretionary earnings for the past three years.
- Offering Price and Terms
Clearly state your asking price and specify what is included in the sale, as well as the terms of the sale, including whether you will offer seller financing, and any qualifications that you require from the buyer. Set a sale timeline and note if you are willing to stay during a transition period and/or sign a non-compete agreement.
Finally, with the assistance of your broker or attorney, compile documents pertinent to the sale including a statement of seller’s discretionary earnings, a valued list of assets, financial statements, a seller’s disclosure statement, information on the market area, photos of the business and copies of marketing materials.
Creating a Memo Summary
If your selling memo is many pages long, start by presenting only a memo summary. A memo summary includes your business name, owner’s name and contact information. In addition, you would include your selling memo’s business description, an overview of your business’s strengths, competitive position, financial performance, and price terms.
When Should You Share Your Selling Memo?
Before you start sharing your selling memo, make sure each copy has a unique identification number for tracking. In the footer of each page, add a reminder that access to the document is governed by the terms of the confidentiality agreement and that there will be legal consequences to any breach of that agreement.
Once you start receiving inquiries about your business, only share your selling memo with buyers you have screened, determined as qualified and are willing to provide you with a signed confidentiality or non-disclosure agreement.
Next Step: Connect with a Business Broker
See qualified sales professionals serving business owners in your area.