A Simple Recipe for an Efficient Business Sale

by Jacob Orosz (President of Morgan & Westfield)

Executive Summary

According to recent studies, the average seller has to talk to 40-plus buyers to sell their business.

That’s a time-suck if there ever was one. Moreover, many sellers also quickly get frustrated when buyers do not return phone calls or emails or randomly just disappear during the sale process.

Fortunately, there’s a better way. A method that’s efficient and highly effective. It starts with drawing up a fact sheet known as a Confidential Information Memorandum (CIM). A CIM provides pre-screened shoppers with answers to basic questions about your business before they even get a chance to ask.

You don’t want your CIM to be an open book, mind you. The idea is to give qualified buyers just enough information to whet their appetites so that they’ll want to know more.

CIMs are one of our specialties at Morgan & Westfield. In the article below, we outline the most common questions asked by buyers, along with a suggested table of contents that you can use in drafting your own CIM. Read on for a complete overview of the process.

Why Can’t Buyers Just Come Look at My Business?

Buyers are busy, too. Few can afford to waste time traveling to see a business that may not be a good fit for them. Buyers prefer to receive information on a company before traveling to see it in person — especially if they’re not local.

What is the most efficient way to sell my business?

The most efficient and effective way to start the process is to share with potential buyers a written document such as the Confidential Information Memorandum (CIM) on your business that answers the most common questions asked by buyers. This document can be a simple text document with no color or frills, or it can be similar to a business plan and be much more comprehensive.

It’s common for a buyer to look at 50-plus businesses, and it is reasonable to assume that a buyer will forget most of what you tell them if it’s not in writing.

This seems like overkill. Why can’t I just talk to the buyer on the phone?

Most sellers and brokers prepare a marketing prospectus, so it has become standard practice, meaning buyers now expect to receive a CIM on each business they evaluate. If you have not prepared one, buyers will assume you aren’t serious about selling your business.

We have seen email exchanges between a buyer and a seller that go like this:

Buyer: “Please send me more information on the business.”

Seller: “What do you want to know?”

Buyer: No response. End of conversation.

We have spoken with buyers who were unhappy with the “What would you like to know?” response. The buyer expects the seller to give them information without having to pull teeth. This kind of response sends a message to the buyer that the seller is unprepared to sell, is just testing the waters, or isn’t serious about selling. Few potential buyers want to waste their time if they don’t believe the seller is serious.

Most Buyers Have the Same Basic Questions

These are some of the most common:

• What products and services does the business offer?
• What makes the business different? What is its competitive advantage?
• What is the asking price?
• How much inventory does the business have? Is it included in the purchase price?
• Are you willing to finance a portion of the sales price?
• Where is the business located?
• What are the lease terms and basic information regarding the lease?
• How long are you willing to assist with the transition period?
• Are any licenses required to operate this business?
• Is there a management team?

What Should a Professionally Prepared CIM Contain?

Sample Table of Contents:

• Investment highlights
• Terms: price, financing
• Industry Overview
• Company Overview
• Financial Overview
• Product/service description
• Sales & Marketing
• Customer description
• Operations
• Location, facilities, summary of lease terms
• Staff/organization chart
• Legal: licensing, regulation, intellectual property
• Transition: training, non-compete, seller’s continued role in the business
• Improvement potential
• Equipment/asset list
• Disclosure statement

How Much Information Should I Include in My CIM?

Give the buyer enough information to decide if they would like to move forward in the process with a face-to-face meeting.

However, you still want a little curiosity remaining after they review the CIM. You should answer the basic questions and let the buyer know that they may call you to discuss the business in more detail. By packaging your business professionally, you send the message to the buyer that you are serious and prepared.

What are the Advantages of a Professionally Prepared CIM?

Advantages of a CIM:

• The CIM can be shown to other decision-makers, such as investors, board members, the CFO, accountants, or attorneys.
• Having a written CIM shows the buyer that you are serious about selling your business. Buyers prefer to deal with serious sellers.
• The buyer has something to take with them other than a memory of a phone conversation, which may be quickly forgotten.
• Preparing a CIM enables you to position your business in the best possible light and point out its highlights and opportunities for growth. While you must think on your feet when talking to a buyer, with a CIM, you can carefully consider how you present the facts and how you position the business in the buyer’s eyes.
• The buyer can often use your CIM to obtain financing with third parties if it is prepared professionally.
• A CIM often increases the value of a business in the buyer’s eyes by positioning it in the best light.
• Having a written CIM makes your presentation consistent from buyer to buyer and makes it easy to remember exactly what you have told every buyer.
• Preparing a written CIM allows you to address questions that are not commonly asked by buyers, such as how to improve the business. This allows you to discuss highlights of the business without having to be asked about them.

I Prepared a CIM for my Business and Emailed it to More than 20 Buyers. I Haven’t Heard Back From Any of Them. What’s Going On?

These buyers probably saw something about your business that wasn’t a match for them. It’s unlikely they would have moved forward even if they’d physically seen your business. You just saved a dozen hours of wasted time with buyers who weren’t a good fit for your business.

However, it would be helpful to follow up with the buyers to see what their concern is. Once you find out, then you can address this concern in your CIM.

Sending buyers your CIM effectively weeds out the tire kickers. Interested buyers will contact you for more information, at which time you are justified in asking them for a personal financial statement and a buyer profile.

What is the Seller’s Disclosure Statement?

The Seller’s Disclosure Statement provides comfort to the buyer by disclosing any known defects of the business. The Seller’s Disclosure Statement is a short document in which sellers are asked a series of questions relating to disclosures made for the business.

The Seller’s Disclosure Statement is an excellent tool for making the buyer feel comfortable that there are no hidden defects or other unpleasant surprises.

What is the Most Efficient Way to Prescreen Buyers?

The best way to prescreen buyers is to request that the buyer sign a non-disclosure agreement, buyer profile, financial statement, and disclosure statement. You can then provide the buyer with a copy of your CIM, inviting them to get in touch with any questions.

That’s it. Pretty simple to do but rarely practiced among sellers. Most sellers either attempt to prescreen the buyer too thoroughly before giving them any information on the business or simply don’t prescreen them at all.