THE IMPORTANCE OF A CONCISE SELLING MEMORANDUM
To increase the seller’s chance of a satisfactory sale of a business, it is critical that his or her team present the business in a concise, professional manner.
I recently had an instance where a solid business was poorly presented to a potential buyer. In this instance, I represented the buyer, who signed an NDA, provided proof of funds and was qualified. Having been provided with very little information prior to the meeting (other than the business address), I was assured that “explanatory information” on the business would be made available at our meeting.
The asking price for the business was over $7 million and the two lines of financial information we were provided indicated that the asking price may not be far off. However, prior to and during the meeting with the seller, there was nothing presented to explain the business and opportunity. As a result, the appearance to the buyer was that the seller was not willing to make any formal assertion about the business nor present the business in a professional manner. This created an environment of rapid fire questions and answers. Not only was no rapport developed, but rather the meeting moved more towards mutual distrust. Obviously, these parties will not be going forward. In this instance, the seller’s representative was not a business broker, but another professional, whose primary profession was NOT selling companies.
When an owner presents a business for sale it is important to take the time to display the business in a manner that highlights the key characteristics of the business as well as why the opportunity should make sense to the buyer. This is often done in the Confidential Information Memorandum. It is sometimes referred to by other names, such as a “Selling Memorandum”, “Confidential Business Review” or other term.
The content of the memorandum usually includes a combination of the following components:
|Confidentiality Notice||Market Demographics|
|Purpose & Disclaimers||Vendor concentration (with no names)|
|Executive Summary||Customer concentration (without providing names)|
|Company History||Growth Opportunities|
|Marketing Strategies||Reason for Sale|
|Processes||Price & Terms|
|Personnel (Organization Chart without names)||Business Financials|
The benefits of a Confidential Business Review memo:
- It provides the seller with the opportunity to present his or her company in a clear, compelling light.
- A good profile readies both buyer and seller for negotiations and reduces the time wasted by asking questions that the document can effectively address.
- It accelerates and focuses the due diligence process. A good profile provides a point of reference for the buyer.
- It shows the buyer that the seller is serious.
- It allows the buyer to qualify him or herself. A good profile will indicate the kind of management and financial resources needed to execute the purchase and become a successful owner.
- It enables the company to disclose weaknesses and address them, preventing them from becoming bargaining points later.
If you want to present your business in the best light possible, develop rapport with qualified buyers and increase the chances of a successful business sale, engage the services of a qualified M&A advisor or business broker to work with you in the marketing and sale of your business, including the preparation of a professional Confidential Information Memorandum.
NorthBridge Business Advisors specializes in the preparation, marketing and sale of small to medium sized businesses as well as any related real estate. We are based in Morristown, NJ and cover the Greater New York and Philadelphia metropolitan areas. Please contact us at Jcox@northbridgebusiness.com or
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