The Business Information Memorandum

The business information memorandum is the key marketing document in the sales process and also contains the financial information prospective purchasers will use to value the business.

It can take up to 4 weeks to write and should include the minimum information prospective purchasers reasonably require to understand the business, in order to submit a meaningful non- binding indicative offer.

The information memorandum should include an executive summary that succinctly articulates:

• what the business does;

• the problem that it solves in the markets that it plays;

• what makes it unique in those markets;

• strengths that provide competitive advantage, ideally that are sustainable;

• growth opportunities available to a new owner and

• a summary of historic and forecast financial performance.

The body of the document should include sections providing an overview of:

• the business' industry including:

  • size;

  • market trends; and

  • competitive landscape

• the business' operations, including, as applicable, its:

  • products and services;

  • revenue model;

  • customers;

  • suppliers;

  • locations;

  • intellectual property;

  • and property, plant and equipment.

Anything commercially sensitive, like customer and supplier names can be deidentified in the document to preserve their anonymity.

• future growth opportunities, including:

  • entering new product, geographic and industry sectors;

  • investing in new technologies;

  • improving existing systems and processes; and

  • making acquisitions.

• employees and management, including:

  • an organisation structure diagram;

  • staff numbers by department; and

  • profiles of key senior management.

• financial performance, including:

  • normalised historic profit and loss statements for the preceding three financial years;

  • explanations of business performance over this period;

  • a forecast for each of the next three financial years; and

  • a current balance sheet.

Significant time is usually spent with the business' accountant normalising the historic profit and loss statements that are included in the information memorandum, because they are used by prospective purchasers to value the business.

Profit normalisation involves adjusting earnings to reflect the business actual performance from its core operations by:

• backing out all one-off and non-business-related income and expenses;

• reflecting market salaries and wages for the owner and any family members working in the business; and

• presenting the accounts on an accrual rather than a cash basis of accounting, as this is the method for reporting earnings most commonly used by prospective purchasers in their business valuations.

The information memorandum should also include financial forecasts if the business is a growth business. These should be:

• reviewed and sense checked by the business' mergers and acquisitions advisor; and

• ideally underpinned by a three-to-five year strategic plan that the business is in the process of executing.

The above is important because businesses that have a clear and realistic plan to grow future earnings and a demonstrated ability to achieve their strategic plans can expect to be valued at a higher multiple of earnings than businesses with limited future growth potential.

The information memorandum is made available to prospective purchasers after they've entered into a confidentiality agreement. This preserves the confidentiality of all information disclosed to prospective purchasers through the course of the sales process.