Write an informative and accurate Selling Memorandum that provides the essential details of your business.
Objective
Give buyers the critical information they need to make you an offer.
Tasks
Lay out the financials and fundamentals of the business. Break it into easily digestible sections. Include appendices and exhibits that support the information contained within the body of the memorandum.
Best Practices
The Selling Memorandum will be needed when first engaging interested and qualified buyers who sign your Non- Disclosure Agreement (NDA). It provides them with all the relevant facts and figures on your business. It’s your primary selling document and is used by buyers to initially assess your business, determine if it is a match with their criteria and objectives, and make you an offer.
The Selling Memorandum is a lot like a business plan. It covers all essential facets of running the business. Unlike a business plan, which is typically forward looking, the Selling Memorandum primarily covers historical performance and current status of operations. It touches on the company’s plans and projections, but those projections are not the central proposition for the buyer. Most buyers will discount projections and heavily weigh past and current performance to determine its value.
The contents should include:
- Table of Contents (if more than 5 pages)
- Abstract or Executive Summary (if more than 10 pages)
- Business Location, Description, and Brief History
- Products and Services (with emphasis on strengths and unique intellectual property)
- Market and Competitive Overview (with emphasis on growth trend and market share/position)
- Operations (with emphasis on production processes, equipment, and inventory)
- Staffing (with emphasis on key talent and skills available to stay with the business)
- Financials and Tax Returns (3-year balance sheet, income, and cash flow)
- Legal/Licensing/Regulatory Considerations
- Offering Price Range, Preferred Terms and Guidance on Submitting an Offer
Tools and Tips
A Selling Memorandum for a small business is NOT a lengthy document. The body is usually about 10 pages. Supporting financial statements and documentation are included in the appendices.
You should number each one and register each one to each buyer who you send it to, by affixing their name on the cover. Sending it in PDF format, marked “confidential” is the best practice. It’s a good practice to watermark “CONFIDENTIAL” on every page.
Buyers will want to know why you are selling the business, so it’s always good to include a short explanation of your motivations, like “retiring,” or “relocating,” or “health/family issues”.
Buyers will want to know if you are willing to sign a non-compete agreement, so it’s good to include a short statement, like “non-compete, 3-years, 30-miles,” or other parameters for duration and geography.
Buyers will want to know if you (or other key people on your team) are willing to stay for a transition period. It’s good to include a short statement about how long that would be and if it is paid or unpaid.
Buyers will want to know if you have a time frame for offers and closing. It’s a good idea to keep the buyer’s due diligence to 60-90 days, if you accept their offer.
Summary
Buyers will rely heavily on the Selling Memorandum to determine if your opportunity is worth their time and the price range you are asking for is reasonable. From this perspective, it must satisfy their need to know if the business is a match with their interest and criteria, and a match with the investment they are prepared to make. The document passes the “smell test” and looks like a good buy versus make (or buy another) opportunity.
By writing a good Selling Memorandum, you will save them and yourself a lot of time and frustration. Above all, the Selling Memorandum must be factual and accurate. If there are any material differences between what you state in the memorandum and what the buyer discovers during due diligence, it can sink the deal. Keep it real!
Examples:
- Selling Memorandum Format and Description