Creating a Confidential Information Memorandum (CIM) to Sell Your Business
As you prepare to present your business to prospective buyers, you’ll need to create a thorough written overview of your business and why it’s a good purchase prospect. A Confidential Information Memorandum (CIM) also referred to as a selling memorandum, confidential description book, or offering memo, provides prospective buyers with their first insight into your business and its potential for future profit. Understanding what a confidential information memorandum entails can significantly impact the success of a business transaction.
What is a Confidential Information Memorandum (CIM)?
A Confidential Information Memorandum (CIM) is an important document used in business sales to provide potential buyers with detailed insights into the business being offered. The degree of detail contained in your selling memorandum depends on the size and complexity of your business. If your business is small, uncomplicated, and likely to sell for under $200,000, then you can probably reduce the document down to a one-page terms sheet that describes your business, its financial information, price, and terms. However, if your business is large and complex, your selling memo will probably be longer to properly explain your offering and its price.
Key Components of a Confidential Information Memorandum
Your CIM, or selling memo, should present the facts about your business, such as earnings and asking price, without disclosing complete financial information. It should be truthful and accurate, as you’ll need to certify the accuracy of all information before the sale closes. The memo should strike a balance between providing facts about your business while inspiring prospective buyers to take the next step and contact you.
For businesses expected to sell for over $200,000, here’s what you should to include:
1. Table of Contents
Include a table of contents for selling memorandums longer than four pages.
2. Summary Page
For CIMs longer than 10 pages, add a summary page. The summary page serves as a concise introduction to the business, offering prospective buyers a snapshot of the key elements that make the business an attractive investment. Include a brief overview of the business’s history, its mission, and core offerings. Highlight the unique selling propositions and competitive advantages that differentiate the business in its market. The Summary Page should also include a high-level financial overview.
3. Detailed Business Overview in a Confidential Information Memorandum
The business description explains why you’re selling your business and highlights its strong points. Include the following information: outline of the business’ history, structure, ownership, description of its products, staffing, markets, operations, and financial information, including annual sales and earnings numbers.
4. Location
Including the geographic location, a description of the building, and lease information. Highlight the strategic significance of the location, such as proximity to key markets, supplies, transportation hubs, which might contribute to operational efficiencies or market access. Understanding the location’s role in the business’s success helps buyers assess potential logistics and market opportunities.
5. Business Strengths and Challenges
This is an opportunity to list your business’s strengths and any advantages it has over its competition. Accurately list the challenges it faces while outlining how these challenges may provide opportunities for growth.
6. Competitive Overview
Describe your business’s competitive position within its industry and its advantages. Begin by identifying the primary competitors and their market share, while maintaining confidentiality by omitting specific names. Highlight the unique aspects of your products or services that give your business a competitive advantage, such as proprietary technology, specialized expertise, or superior customer service.
7. Products/Services
Write a concise description of the goods and services that your business provides, including a product list and sales trends. Take this opportunity to highlight any unique products or services that your business offers.
8. Operations
Provide information on your hours of operation and seasonality. Include a list of your operating equipment, inventory, and an overview of your production processes and staffing.
9. Marketing
Present industry and geographic growth trends. Include descriptions of customer profiles from client lists, the competition, and your company’s position within its industry. Outline your marketing strategy and potential marketing opportunities.
10. Key Management and Employees
Include job titles and descriptions, compensation, benefits and credentials, length of employment, and information on contracts, but omit employee names.
11. Future Plans/Growth Projections
Outline opportunities for growth, including the investments in time, finances, and staff required to manifest them.
12. Potential Buyer Concerns
Address any issues that might concern potential buyers with business, marketing, or transition plans designed to overcome those issues.
13. Financial Information
Provide a statement of your accrual or cash-based accounting method, as well as one-line summaries of your revenues, net income, and seller’s discretionary earnings for the past three years.
14. Offering Price and Terms
Clearly state your asking price and specify what is included in the sale, as well as the terms of the sale, including whether you will offer seller financing, and any qualifications that you require from the buyer. Set a sale timeline and note if you are willing to stay during a transition period and/or sign a non-compete agreement.
15. Appendix
Finally, with the assistance of your broker or attorney, compile documents pertinent to the sale including a statement of seller’s discretionary earnings, a valued list of assets, financial statements, a seller’s disclosure statement, information on the market area, photos of the business, and copies of marketing materials.
Creating an Effective CIM
Creating Your Selling Memorandum Summary: If your selling memo is long, start by presenting only a summary to prospective buyers. A memo summary includes your business name, owner’s name, and contact information. In addition, include a business description, an overview of your business’s strengths, competitive position, financial performance, and price terms.
When and How To Share Your Confidential Information Memorandum (CIM)
Before you begin to share your selling memorandum, make sure each copy has a unique identification number for tracking purposes. In the footer of each page, add a reminder that access to the document is governed by the terms of the confidentiality agreement and that there will be legal consequences to any breach of that agreement.
Once you start receiving inquiries about your business, remember to share your CIM, or selling memo, only with buyers you have screened, determined as qualified and are willing to provide you with a signed confidentiality or non-disclosure agreement. Ask your attorney, business broker, or accountant to review the memo for any legal implications that may impact the sale process. The Confidential Information Memorandum is a valuable marketing tool highlighting all aspects of your business and makes a valuable first impression on prospective buyers.
Understanding the significance of a well-prepared confidential information memorandum when selling a business can greatly enhance your chances of a successful transaction. Consider assembling a team of professionals to help you draft a compelling CIM. Visit BizBuySell’s Broker Directory to find a business broker to help you sell your business.