What’s an Information Memorandum?

An Information Memorandum (sometimes called a sales memorandum or IM) is a document detailing a business’s key details and performance.

For business sellers, it showcases your business using reliable facts and figures. For business buyers, it’s a way to ‘look under the hood’ and see the nitty-gritty details about a business they might want to buy.

What’s in an Information Memorandum?

An Information Memorandum contains all the details a prospective buyer might want to know about your business. This includes:

• About the business – where it is, what it does, its purpose and a basic description of the business model
• Operational details like suppliers or partners
• The business’ history and your reason for selling
• Products and services – descriptions about the products or services the business offers. This is a good place to link to websites that help explain what you do
• Management and staffing – employee numbers, roles and contract details. Include what the owner does, how someone new might fit in, as well as info on the company culture
• Market information – about the industry, target market and your customer base
• Legal information – any intellectual property, patents, permits, licences or rights the business holds
• Financials – showcase the general financial health of the business as well as any assets, stock, and outstanding liabilities or financial obligations. A summary of performance report from your accountant is a good way to show many of these details
• Projections – any profit forecasts, future opportunities, expansion plans or market details that help prove your business is a good investment
• About the sale – your expectations on the asking price, and terms of the sale

All the information included in your Information Memorandum needs to be accurate and reliable. This document also plays a promotional role, so include a sales pitch section or two, like ‘why buy the business’.

When do you need an Information Memorandum?

Typically an Information Memorandum is the first real documentation a buyer will get about your business. You should start pulling it together as soon as you decide to sell.

For many business sellers the early stages of a sale will go like this: a buyer will respond to your ad, you’ll have a few calls or meetings, then if they’re still interested they’ll ask to see comprehensive information about your business. This is when the Information Memorandum comes in.

An Information Memorandum contains commercially sensitive information, so it’s best to get a non-disclosure agreement (NDA) signed before potential buyers can see it. Signing an NDA can help establish how serious a buyer is about moving forward with the sale, and makes sure they don’t pass on any sensitive information.

How do you get an Information Memorandum?

You can write one yourself, or get someone like a business broker to do it for you. Regardless of who writes it, you will need an experienced lawyer, accountant, or both to ensure the numbers and information you’ve used are sound.

If you choose to do your own Information Memorandum put yourself in the buyer’s shoes. What would you want to know if you were buying the business? The what, where, when, why, who, and crucially, how much?

The buyer will still go through the due diligence process so you don’t need to share absolutely everything at this stage. However, putting the time in to showcase your business with solid facts and figures will help buyers decide quickly if this is the business for them.

Remember…

An Information Memorandum is an important document. A good one tells a buyer they’re getting a well-run business, offering good value for money. A hastily-assembled one that’s light on detail and specifics can put buyers off.

For that reason, it pays to spend the time and energy required to make it watertight. Talk to someone who’s been through the process before, and make sure you don’t cut corners. If you create a thorough, detailed Information Memorandum, you’ll be in the best position to attract buyers.

Wondering what else you should consider when selling? Check out our ultimate guide on how to sell a business.