Preparing an Information Memorandum 

You have marketed your business for sale and several buyers have contacted you and expressed interest in your business. The next step after the buyer has signed a confidentiality agreement is to send the buyer an offering memorandum on your company, usually called a confidential information memorandum, or CIM for short.

A CIM is a professionally prepared summary of your business that is presented to prescreened buyers who are interested in purchasing your company. The CIM addresses the buyer’s questions quickly and efficiently, saving countless hours. It includes information regarding your company’s history, products, services, licensing, and competition. It also includes a financial summary, information about operations, lease terms, the value of assets and inventory, an employee summary, and terms of the sale. 

The purpose of the CIM is to help the buyer decide if they would like to take the next steps and learn more about your business. The CIM will not address every question the buyer may have about your business. It’s not supposed to. Rather, it allows the buyer to move to the next step in the transaction, which is a site visit or request for more information.

Here are the major topics typically covered in a CIM:

  • Assets
  • Competition
  • Customers
  • Deal structure and financing
  • Equipment
  • Facilities
  • Financials
  • History
  • Improvement potential
  • Intellectual property
  • Inventory
  • Litigation
  • Operations
  • Pricing
  • Product or service
  • Staff

Advantages of Preparing a CIM

Taking the time to prepare a CIM will provide you with several key advantages.

Saves Time

When selling a business, you will quickly learn that all buyers ask the same questions. You’ll answer the same 50 to 100 questions from every potential buyer. This becomes tiring if you aren’t prepared. A CIM replaces what might be a one- to two-hour discussion by efficiently and consistently answering the questions virtually every buyer will have about your business. CIMs minimize distractions and allow you to focus on running your business.

Many buyers are tire kickers. If you waste your time talking to dozens of uninterested buyers, you may lose patience by the time you have a real buyer on the hook. An efficient process will save you time and grief, and ensure you’re fresh when you’re in front of a serious buyer. 

Helps You Prepare

When a business broker, M&A advisor, or investment banker assists you in preparing the CIM, you have the opportunity to discuss your operations in-depth, and it prepares you for the dozens of questions a sophisticated buyer may ask. 

An experienced business broker or M&A intermediary will have crafted hundreds of CIMs and will be adept at presenting the business in the best light possible. You will also have the chance to rehearse your answers to common questions buyers will ask you, such as:

  • Why are you selling your business?
  • If the business has such incredible potential, then why don’t you keep it?
  • Who are your competitors, and how do you stack up against them?
  • Why should I buy your business? Why don’t I just start one?

Communicates the Value of Your Business

Often, a buyer consults with third-parties who assist in decision making, such as accountants, attorneys, or investors. In the absence of a CIM, the buyer must sell the business to third parties on their own. With a professionally prepared CIM, the buyer can simply present this document to their advisors, then have an intelligent discussion based on the contents of the document.

Provides You With Perspective

Reviewing your CIM gives you a unique opportunity to view your company from a fresh, realistic, objective perspective, as if you were a buyer. Doing so prepares you for negotiations and gives you the opportunity to position your business in the best light possible.

Communicates That You are Serious

Preparing a CIM also communicates to the buyer that you are serious about selling your business, and the buyer is more likely to take you seriously and treat you with respect as a result.

When selling a business, you will quickly learn that all buyers ask the same questions.

Tips for Preparing a CIM

Include the Right Amount of Information 

The story of your business should be presented in a coherent, professional package. Your CIM should include most of the information a buyer needs to know when deciding if they would like to pursue your business. But the CIM shouldn’t contain everything the buyer needs to know. It should contain just enough information for the buyer to decide if they would like to invest time in meeting with you – it doesn’t need to answer every imaginable question about your business.

Present the Highlights in a Persuasive Format 

The CIM should present the key selling points of your business in a persuasive story. It should also position the negative points of your business in the best light possible. For example, if you haven’t invested heavily in marketing your business in recent years, this presents a tremendous opportunity to the buyer to increase revenues.

Differentiate Between Your CIM and Teaser 

The teaser profile is an abstracted version of the CIM and is often three to five pages in length. The teaser profile contains the highlights of the business and is sent to prospective buyers on a confidential basis – that is, without divulging the identity of your business. It is helpful to ascertain whether a buyer is seriously interested before allowing them access to more sensitive information, including your company’s name. The teaser profile can be shared with buyers before they view the CIM if you are not comfortable sharing more detailed information with a potential buyer.

Patience is Key When Buyers Don’t Respond 

Don’t chase buyers down. Buying and selling a business requires a lot of patience. A buyer needs to be proactive if they’re serious about buying your company. Not hearing from a buyer happens all the time, and I suggest that you just keep moving forward. Don’t chase down any buyer.