What Is a Selling Memorandum in Connection with the Sale of a Business?
When preparing your business for sale, you will want to present the most accurate, up-to-date information about the business for prospective buyers. Known as a selling memorandum, this document is a marketing piece designed to highlight all aspects of your business.
The selling memorandum should discuss the details of your company, including:
- The products or services you provide
- How you have fared in the industry
- Your competition
- Operational procedures
- Management
- Employees
- Marketing materials
- History of the business
You will also need to include accurate financial information, including sales figures, cash flow, the value of your assets, profit margin, and how the numbers have changed over the years. This can take the form of charts or graphs, or a combination. Finally, you can include your asking price.
If your business has had difficulties or deficiencies in an area, address these areas and how you overcame your shortcomings or include information on how the new owner can avoid or, better, solve similar problems. Trying to disguise business problems is never a good idea; rather, confront these challenges head on in your memorandum.
The document should be well written and only a few pages long. Not unlike a business plan, it should be presented in a neat, professional manner. A selling memorandum should then only be shown to a prospective buyer after he or she has signed a confidentiality agreement.
Before you sit down to write a selling memorandum, make a list of all aspects of your business. Think carefully, list the positive features, and include them in the document.
One of the keys to a successful selling memorandum is to know what not to include. Don’t resort to hyperbole or tout the business with false claims. Do not speculate or make predictions or guarantees about the future of the business. The selling memorandum needs to spark interest in the business based on facts.
Also, leave out highly confidential information, such as the terms of contracts with key customers. Picture what would happen if the selling memorandum fell into the hands of one of your competitors, and draft it accordingly.
You may have one selling memorandum prepared for all prospective buyers, or you may tailor it to specific buyers. For example, if one of your subdivisions is more closely related to the expertise of the potential buyer, you might stress that subdivision in one version of the selling memorandum.
Once you're finished, proofread the document carefully. Have your attorney or accountant review the document to make sure you have included only factual information and that your financial numbers are correct. Keep in mind that the selling memorandum does not constitute any type of agreement but is a sales and marketing tool only. Still, it deserves a careful execution and the input of your business advisors.
