Whether you're selling your business on your own or through a broker, you'll need to be ready to present a thorough written overview of your business and why it's a good purchase prospect.

Some brokers call this document a selling memo. Others call it a confidential description book or an offering memo.

  • If your business is very small, uncomplicated, and likely to sell for under $200,000, you can probably reduce the selling memo to a terms sheet that presents little more than a business description, financial information, and presentation of price and terms.
  • If your business is large, and if its assets, products and systems are complicated, your selling memo will likely run considerably longer in order to adequately explain your offering and its higher price.

A few quick exercises can help you develop the right content for a complete selling memo, along with advice for how to distribute the information to prospective buyers and why and how to obtain confidentiality agreements beforehand.

Step 1. Prepare your selling memo.

Your selling memo is the first comprehensive description of your business that your prospective buyer will see. It needs to strike a careful balance between delivering facts about your business while also offering an inspiring description of its future potential.

  • It presents facts about what your business is and does and what makes it an attractive purchase opportunity without revealing sensitive information that you or your ultimate buyer won't want non-buyers (especially competitors) to know.
  • It doesn't stretch the truth or overlook weaknesses, as you'll need to warrant the accuracy of all information you've provided before a sale closes.
  • It shows earnings and asking price information without disclosing complete financial statements.
  • It inspires buyers to take the next step by contacting you for more information.

The following chart lists information included in the selling memo for a business that aims to sell for a price over $200,000.

Selling Memo Contents

  

Table of Contents if memo is longer than 4-5 pages.

 

Summary if memo is longer than 10 pages. (See Step 2.)

 

Business Description

  • Summary of business history.
  • Business structure (sole proprietorship, partnership, corporation) and ownership.
  • Short description of products, staffing, markets and operations.
  • Financial information including annual sales and earnings; description of products/services; description of key strengths; reason for sale.

 

Location

  • Geographic location, building description, lease information.

 

Business Strengths

  • List of business strengths and competitive advantages.
  • List of business challenges accompanied by statements of how the issue could be overcome or provide a growth opportunity.

 

Competitive Overview

  • Description of number of competitors without listing names.
  • Description of competitive position and advantages of your business.

 

Products/Services

  • Brief description of business offerings including product list.
  • Description of distinguishing product/service features.
  • Product sales trends.

 

Operations

  • Information on operating hours and seasonality.
  • List of operating equipment.
  • Inventory information and list.
  • Production processes.
  • Staffing overview.

 

Marketing

  • Industry information and growth trends.
  • Geographic information and growth trends.
  • Customer profile including information on client lists.
  • Description of competition and competitive rank.
  • Description of marketing approach, marketing plan and untapped marketing opportunities.

 

Key Management and Employees

  • Key employee job titles, job descriptions, length of employment, compensation, benefits and credentials (but not names) including information on contracts.

 

Future Plans/Growth Projections

  • List growth opportunities, along with the investment in time, financial resources and staff required.

 

Potential Buyer Concerns

  • Issues, if any, that buyers might see as purchase barriers.
  • Statements describing business, marketing, or transition plans that ease or overcome each potential concern.

 

Financial Information

  • Statement of accounting method: Accrual or cash basis.
  • Revenues, net income, and seller's discretionary earnings for past three years presented not as financial statements but as one-line summaries.

 

Offering Price and Terms

  • Asking price (example: ABC Company, a California Subchapter S Corporation with all shares held by the owner. Asking price is $XXX.XXX).
  • Contents of sale (example: Sale includes assets. Furnishings, fixtures, and equipment have a fair market value of $XXX,XXX, detailed in the Appendix. Inventory to be included at cost).
  • Terms, including whether seller-financing is available (example: Seller requires $XXX,XXX at closing and the balanced financed by SBA note or seller-financing to qualified buyer at X percent over X years).
  • Buyer qualifications, if any.
  • Seller's time frame including sale timeline and seller's willingness to remain during a transition period.
  • Statement of seller's willingness to sign a non-compete agreement.

 

Appendix

  • Statement of seller's discretionary earnings.
  • Financial statements as recommended by broker and accountant.
  • Asset list showing values.
  • Seller's disclosure statement, prepared with assistance from broker or attorney, providing an accurate assessment of business condition, a list of licenses and regulations that apply, and descriptions of any legal issues.
  • Market area information if business relies on local clientele.
  • Photos of business location, building and equipment.
  • Copies of marketing materials.

 

Step 2. Create a summary of your selling memo to use during early communications with prospective buyers.

If your selling memo runs many pages long, as a first step present only the memo's summary that includes the following information:

  • Business name, owner's name, contact information.
  • Business description, as in the selling memo.
  • An overview of business strengths, competitive position, financial performance.
  • Offering price and terms, as in the selling memo.

Step 3. Create a plan for sharing your selling memo and summary.

Consider the following approach:

  • When you receive inquiries from business-for-sale ads, don't send your full selling memo if it is long and provides a detailed description of your business. Instead, respond with a copy of your selling memo summary. This allows you time to assess the buyer's interest and financial capability before sharing further details.
  • Share your selling memo or summary only with prospective buyers you deem - based upon the information they've provided - to be qualified prospects, and never before obtaining a signed confidentiality agreement, covered in the next step.

Step 4. Be ready to obtain confidentiality agreements before releasing your selling memo.

Buyers understand they'll need to sign confidentiality or non-disclosure agreements before receiving information on businesses for sale, so be ready and don't be hesitant about asking.

Use a form provided by your broker or attorney. Talk to them about steps to follow when screening and qualifying potential buyers, including when to obtain confidentiality agreements before sharing information. At this point, you just want to be prepared by having the forms ready to use.

In next week’s installment of “Selling Your Small Business” we’ll discuss how to protect your confidentiality while marketing your business.   

Editor’s Note: This article is the tenth piece in a series taken from BizBuySell.com’s Guide to Selling Your Small Business. The guide is a comprehensive manual to help small business owners maximize their success when the day to sell arrives. Each Wednesday, Inc.com will publish a new section of the guide outlining BizBuySell.com’s best practices, from the initial planning stages of a sale all the way through negotiations and post-sale transition.