
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
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Table of Contents if memo is longer than 4-5 pages. |
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Summary if memo is longer than 10 pages. (See Step 2.) |
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Business Description
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Location
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Business Strengths
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Competitive Overview
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Products/Services
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Operations
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Marketing
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Key Management and Employees
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Future Plans/Growth Projections
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Potential Buyer Concerns
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Financial Information
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Offering Price and Terms
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Appendix
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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.