One document can make all the difference in selling your business.
The Sales Memorandum isn’t just a mere formality; it is the first vital point of formal information exchange between buyer and seller, that if done right can propel your business sale jumps ahead.
(if done poorly, it has the exact opposite effect)
So, here it is; What is a Sales Memorandum and Why you need a Sales Memorandum:
What is a Sales Memorandum?
To put it dryly, the ‘Sales Memorandum’ is a roughly 20-page document that details your business’s operations, covering everything from your basic functions through to financial figures. It is given to your prospective business buyers, not immediately after they have enquired, but after they have signed a confidentiality agreement. This is because the document may contain sensitive information about your business that you don’t want to just ‘give out’.
When a buyer has filled out the confidentiality agreement the Sales Memorandum is the very next thing that you need to send them.
(NOTE: speak to your solicitor about creating a good confidentiality agreement)
Why do you need a Sales Memorandum?
The document itself is not an ‘advertisement’ for your business. It needs to be an un-biased information source for potential buyers that allows them to understand your business from the inside out. So why do you need it? Here’s why:
The current buyer’s market is at its height of caution at the moment and it’s not that hard to see why. When a buyer visits a business classifieds site they need to sift through countless businesses, some of which perform exactly as advertised… and some of which do not. The issue that buyers face is that the only way to tell the difference between a good business and a ‘bad’ business is to spend long hours in due diligence- often only to find out that the business they’re looking at is nothing like the business that was advertised.
This is why buyers are so uncertain, and it’s also the precise reason why you need a Sales Memorandum; to assist in overcoming this uncertainty. If you overcome this uncertainty you can
- accelerate the buying process,
- gain an advantage over other businesses on the market that don’t have a memorandum
- and Encourage more buyers to proceed from the enquiry stage.
All of this can add up to a quicker sale and with a bit of luck- a higher selling price.
The thing is, the only way to truly do this is to objectively show your business- warts and all.
Why warts and all? Think about it like a used car sale.
You don’t want your Sales Memorandum to play the part of the used car salesman who does nothing but talks up your car. Business buyers don’t trust that guy. Instead, you want your Sales Memorandum to play the part of a trustworthy third party vehicle inspection that shows the good with the bad. By you disclosing the good with the bad in an unbiased way, your potential buyers will feel more comfortable trusting that what they’re reading is true. If they can trust what they’re reading then their uncertainty is lessened and they will be able to make an informed decision about whether or not to pursue the sale.
Quick List: How do you write a Sales Memorandum?
To describe exactly how to write a Sales Memorandum would far exceed the scope of this blog. So we’ll keep it short. Try to cover the following:
(pssst. You can skip the list if you aren’t writing one today)
- Conditions of Acceptance
- The Proposed Transaction
- Information regarding this offering
(note: these first three are important and you should seek assistance in preparing them)
- Profile, Description and Brief History of the Business
- Description of the Market and the Customers
- Product, Sales and Pricing
- Specific Trends
- Advertising and Sales
- Real Estate
- Shop Fixtures, Fittings and Software
- Training and Introduction
- Financial Highlights
- Employees and Wages
- Skills and Licenses Required
- Current Issues
- Strengths of the Business
- Reasons for Sale
- Sale Price
- Summary of Investment Considerations
- a List of Documents available for review
Now, this list offers a framework from which to start, but keep in mind that some of these items might not apply to your business, nor will they encompass everything that you’ll need to include. Try to cover what is important for your business, and remember, try keep it objective and keep the ‘sales’ speak to a minimum.
To recap, through reducing the uncertainty for buyers, a good Sales memorandum can
- accelerate the buying process,
- help you gain an advantage over other businesses on the market that don’t have a memorandum
- and encourage more buyers to proceed from the enquiry stage.
And once again, all of this can add up to a quicker sale and with a bit of luck- a higher selling price. So if you’re thinking of selling, any time spent making your Sales Memorandum as good as possible is NOT time wasted.
To talk to one of our agents today about selling your business and preparing your own sales memorandum, click here to fill in an enquiry or simply call us on (02) 9817 3331.
By Zoran Sarabaca
Principal of Xcllusive Business Sales
Sell your business with Certainty.
DISCLAIMER: The information contained in this blog is for information purposes only. It is not meant to be considered as business advice. The points of view expressed represent reactions to the current business market and it should be noted that the market may be subject to change in the future. Reader’s specific circumstances may be different and have not been taken into consideration. Always consult with your professional advisors for any business advice.