Written by attorney Joshua M King

Selling a business: the sales memorandum

A sales memorandum is a document business sellers prepare to market their business to potential buyers.

An investment banker or business broker can help you produce a sales memorandum, but if you decide to go it alone then here is a broad outline of the details the document should include:

  • The length of time the business has been in operation
  • An analysis of the sector in which the business is operating
  • Staff details – the number of employees, how many are part-time and how many full-time, and their job titles
  • The locations of all business premises
  • Profit, cash flow, value of assets, total debts and any other relevant financials from the last 3-5 years
  • How you’d prefer the sale to be structured, such as assets and goodwill or share transfer

The fundamental challenge in composing a sales memorandum is to present your business in a positive light without exaggerating its merits or downplaying its drawbacks. Misleading buyers will backfire, wasting not just their time but yours too when they conduct further research – called the due diligence process – and discover the business is less attractive than portrayed in the memorandum. Trust will be fatally eroded and in most instances your sales negotiations will collapse.

Highlight the areas in which your business enjoys an edge over the competition. For example, you might say: “We’re the market leader in our manufacturing niche" or “the restaurant was rated the best Italian eatery in the state by the Seattle Times."

Confidential information, such as the names of clients or sensitive strategic plans, should not be included in the sales memorandum. Only when negotiations are more advanced, when you’re confident that you’re dealing with a serious buyer, should such information be disclosed.

The sales memorandum should be succinct, summarising key information in a way that gives prospective buyers a clear idea of the nature of the business and its potential. Effectively a brochure that promotes the virtues of your business, the sales memorandum shouldn’t necessarily consist of blocks of prose – you can use bullet points and augment the text with charts and tables to make it more visually appealing.

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