What is an Information Memorandum in a Business Sale?

What is an Information Memorandum in a Business Sale?

Whether you are buying or selling a business you may have come across the term 'Information Memorandum' or 'Info Memo' or 'IM' for short, and wonder what it entails. Basically, an IM is a document usually prepared by the business owner or their advisor that outlines details about the business they are selling. 

The IM helps in the business sales process as it provides information to a potential buyer that allows them to assess whether they would like to buy the business. When selling a business it also helps the seller to organise the sale and understand the unique selling points and justify their asking price. 

 

 

Why would you create an Information Memorandum?

 

An IM is typically created as a stepping stone in the business sales process.

It is a document that allows the seller or their agent to engage further with a buyer about the business. It contains enough information for the buyer to ascertain whether the business is suitable for them and if they would like to make an offer. 

Generally, it is a graphically designed PDF that showcases the business information with a summary of the past 3 years' financials. Depending on the business that is being sold, it could be short, maybe 3 pages or it could be a comprehensive booklet around 15 pages. 

 

When will you receive an IM?

 

Generally, an IM is provided to an interested buyer after they have signed a non-disclosure agreement or a confidentiality agreement.

There will be information in the IM that is very important to the operation of the business and confidential in nature. So the seller does not want to provide this information unless they are confident the buyer is genuine and there is a legal document like an NDA protecting the information.

Depending on the seller, the IM may be provided after they have a signed NDA or they may request to meet you in person to discuss the business further before providing the IM. Each business sale is different so it is important to work with the seller and their advisors on what option they prefer. 

An IM is usually in a PDF format and emailed to the interested buyer. Sometimes it may be printed and mailed, but these days it is generally a PDF. 

 

 

What confidential information may be included?

 

Typically an IM will contain information about the business for sale in a general manner. The most confidential information may be related to financial information, lease agreements and organisational structure. 

It is unlikely to include information such as supplier details, client information, tax returns or detailed financials. But it does show information about the business that is important for the buyer to make a decision.

Remember, when you are buying a business you also want this information to be protected so that its profitability and future success are not impacted by information falling into the wrong hands. So there is a strategy behind what an IM may or may not include. 

Information that may be included in an IM:

• Company details such as address, owners, history, organisational structure and trading hours. 
• Lease details such as terms, rental amount and permitted use. 
• Key details about the business such as products, services, IPs, trademarks, and potential etc.
• A financial summary that is usually a balance sheet of the past 3 years with some add-backs and calculations such as EBITA. 
• Reason for selling explanation in detail
• Asking price and a breakdown of any conditions such as stock, training periods, handover period, vendor finance options, etc. 

 

 

What cautions are needed when reading an IM?

It's important to remember that an IM is prepared by the seller and their advisors.

The IM provides you with a high-level overview of the business, offering enough information to understand the basics and decide if you want to make an offer. But use caution as the business is most likely being presented in the best possible light. 

Which is why there is a process called due diligence that usually occurs after an offer and deposit are accepted.

Only once you have made an offer, its been accepted, and you continue through the process of due diligence will you be able to view more in-depth information such as tax returns, supplier lists, client lists and so on. It is a period in the sales process that allows you to assess whether the business meets your expectations. The entire sales process is covered in the Bsale Guide to Buying a Business.

An IM is designed basically as a marketing tool. It is to provide the buyer with information about the business, in an easy to read and presentable way. It is an important tool in the sales process. So always ensure you have advisors working with you when you are ready to make an offer. 

 

How can you get an IM designed?

 

There are many different versions of IMs, depending on the business being sold and the advice from the sellers team. 

At Bsale we have created an editable IM template for our clients. It can be accessed by the sellers team to add relevant information. This allows them to input relevant information and provide a beautifully design PDF for potential buyers to review. If you would like more details about it please contact us. 

 

Tags: selling a business buying a business information memorandum guides

About the author

---

---