After your non-disclosure agreement and buyer profile are approved by Morgan & Westfield, you will receive preliminary information about the company, including a confidential information memorandum (CIM) and financial statements.
Information in the CIM
The CIM is a detailed 20 to 30-page report that will give you details on all major aspects of the business, such as: investment highlights; industry overview; company overview; financial overview; product/service description; sales and marketing; customers; operations; facilities; location; staff; transition; improvement potential, and assets.
It will address the most common questions that may occur to you, though the CIM will not address every question you may have about the business. Some questions are best saved for when you meet the seller.
The Purpose of the CIM
The purpose of the confidential information memorandum (CIM) is to help you decide if you would like to meet the seller, see the business, and request additional information.
After signing an NDA and reviewing the initial information on a company, you may request to see the normalized/adjusted financial statements. Normalized financial statements are financial statements that are adjusted to determine the true profitability of the business.
What information am I provided before I make an offer?
There are two main phases in a transaction.
- The period of time before an offer is accepted.
- The period of time after an offer is accepted (due diligence).
Before an Offer is Accepted
Information provided before an offer is accepted assists you in evaluating a business. Before receiving an offer, the seller will be cautious with what they release to you. Sellers should certainly be helpful and engaging, but they will not release everything until they have accepted an offer. A thorough investigation (due diligence) can be conducted only after an offer is accepted.
But I don’t want to waste my time. I demand to see tax returns and bank statements before I make an offer, so I don’t waste my time.
Yes, we understand your point of view. But … the seller does not want to waste their time either. The seller also does not want to share their sensitive information with multiple parties. Confidentiality may be compromised if the seller does this, and an informational leak may be difficult to locate and control. It’s for this reason that sensitive information is released only after an offer is accepted.
At the beginning of the sales process, the seller makes claims that are not verified until an offer is accepted and you move into due diligence. You will receive detailed information to verify the seller’s claims only after an offer is accepted.
The following information is typically released to you before your offer is accepted:
- The following information is typically contained in the CIM:
- Breakdown of sales by customer type (customer names are redacted)
- Breakdown of sales by product or service type
- Summary of staff and key employees (names are redacted)
- Summary of key lease terms
- Equipment list
- Seller’s disclosure statements
- Additional information:
- Marketing material
- Sales literature and brochures
- Financial information:
- Profit & loss statements
- Balance sheet
Can I see the tax returns and bank statements before making an offer?
Once an offer is made, you will have sufficient time to conduct due diligence and verify the accuracy of all financial records. Many buyers request to see tax returns and bank statements before making an offer. However, releasing this information to every buyer who requests it would put the seller’s sensitive, confidential information in jeopardy because a dozen or so copies of the seller’s tax returns and bank statements would be floating all over town.
After an Offer is Accepted
Representations the seller makes are not confirmed until after an offer is accepted. Once the seller accepts your offer, due diligence begins, which allows you to confirm the seller’s representations by reviewing more detailed information. The seller’s claims are verified only after an agreement is mutually approved regarding the basic terms of the transaction.
The following information is typically released to you after an offer is accepted:
- Accounts receivable aging schedule
- Annual personal property tax certificate
- Bank statements
- Copies of existing loan or financing agreements
- Copies of key contracts
- Detailed inventory list
- Employment, agency, and independent contractor agreements
- Equipment leases
- Federal income tax returns
- Financial budgets and projections
- Full financial information with source data (e.g., QuickBooks file)
- Operations manual
- Premises lease
- Supplier and vendor list
- Supplier/vendor contracts
- Leases, such as premises and equipment leases
- Third-party contracts, such as supplier or vendor contracts
- Sales and use tax reports
- Staffing and payroll-related documents, including job descriptions and employment contracts
- Insurance-related documents such as workers’ compensation as well as health and liability insurance
- Equipment inspection reports
- Licenses and permits
- Marketing, advertising, and promotional documents
- Environmental documents and inspections
- Franchise-related documents
- Invoices and receipts