Whether you are buying or selling a business, you may have come across the term ‘Information Memorandum’ (IM), also known as an ‘Info Memo’. Essentially, an IM is a document, typically prepared by the business owner or their advisor, that outlines details about the business for sale.
An IM is a tool in the business sales process. It provides potential buyers with essential information to assess whether they are interested in purchasing the business. For the seller, it helps organize the sale, highlight unique selling points, and justify the asking price.
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Why Would You Create an Information Memorandum?
An IM is often created as a key step in the business sales process. It is designed to allow the seller (or their agent) to engage further with potential buyers about the business. It provides enough information for the buyer to determine if the business is suitable for them and whether they would like to make an offer.
Typically, an IM is a graphically designed PDF, summarizing the business information along with financial details from the past three years. The length of an IM can vary: it may be a concise 3-page document or a detailed 15-page booklet.
When Will You Receive an IM?
Generally, an IM is provided to an interested buyer after they sign a non-disclosure agreement (NDA) or confidentiality agreement. Given that an IM contains confidential information critical to the business’s operation, the seller ensures this information is protected before being disclosed.
The IM may be given after the signed NDA, or the seller may prefer to meet with the buyer in person to discuss the business further. In most cases, the IM is provided in PDF format, usually sent via email, although it could occasionally be printed and mailed.
What Confidential Information May Be Included?
An IM generally presents business information in a way that maintains confidentiality. While specific details like supplier lists, client data, tax returns, and detailed financials are typically not included, the IM will offer enough information for the buyer to make a decision about the business.
Confidential information often included in an IM:
- Company Details: Address, owners, history, organizational structure, trading hours.
- Lease Details: Terms, rental amount, permitted use.
- Business Overview: Products, services, intellectual property (IP), trademarks, etc.
- Financial Summary: Typically includes the past 3 years’ balance sheet, EBITA, and any necessary adjustments.
- Reason for Selling: A detailed explanation.
- Asking Price: Including any conditions like stock, training periods, handover periods, and vendor finance options.
What Cautions Are Needed When Reading an IM?
It’s essential to remember that the IM is prepared by the seller and their advisors. It provides an overview of the business but is often presented in the best possible light, so it’s important to use caution.
After making an offer, the due diligence process begins, allowing the buyer to inspect more in-depth information, such as tax returns, supplier lists, and client details. This phase ensures that the buyer can assess whether the business aligns with their expectations.
The IM is essentially a marketing tool meant to provide key information in a user-friendly format. Always work with professional advisors when ready to make an offer.
How Can You Get an IM Designed?
There are different versions of IMs based on the type of business and the seller’s advisors. At Bsale, we offer an editable IM template for clients. This template allows the seller’s team to input the necessary information and generate a beautifully designed PDF for potential buyers.
For more details about our IM templates or other business sale assistance, please contact us.
