Business Memorandum

Have you heard the old adage that the two happiest days in the life of a small business owner are the day they buy or launch a business, and the day they sell it?  Trust me, nothing has ever been more true.  And if you think buying or starting your business was tough, wait ‘til you try to sell it.  Private businesses, no matter how successful, are almost always very illiquid and almost never worth what the owner thinks it is worth.  And that is why any business owner trying to sell their company needs a selling memorandum.

A selling memorandum provides potential buyers with an excellent first impression by powerfully presenting a clear, concise and compelling story of the business. A well crafted selling memorandum provides the buyer with an explanation of the company’s past and present, and more importantly, sells them on its future potential, in a well-documented and believable manner.

A selling memorandum should be a brochure that takes a potential buyer on a virtual tour of the company.  The tour should begin with a description of the business.  Think in terms of an overview of details such as location, number of employees, years in business, products and services, markets served, channels of distribution, customer profile and how the business is promoted. The next stop on the tour should be a discussion of the business’s strengths and a summary of the accomplishments that have been achieved along the way.  Be sure to clearly state what makes the business better or different than its competitors.

It is important to have a broad discussion about the business’s organization, including how the company is structured, who the key personnel are, and an in depth discussion of the company’s culture.  For example is it an aggressive sales organization where the big producers reign or is it a more discrete, top of the line boutique with an intense focus on customer service.

A good next place to stop on the tour is a description of the company’s facilities, including where they are located, the type, size and condition of each facility, and its accessibility to your distributors or customers.  Photos will be very helpful here.

Next will be a presentation and explanation of the company’s historical financial statements.  Often the financial statements are “recast.”  This means that they are being presented without the current owner’s compensation and benefits.  This allows the potential buyer to overlay their compensation on the existing accounts.  A financial forecast will be helpful with an explanation of how the seller thinks the business might perform under a new owner and why.

The final stop on the tour will be a presentation of customer testimonials, articles, sales literature and any other information that the seller thinks will be helpful to the buyer in making their purchase decision.

Every seller of every business needs a selling memorandum.  It will make it so much easier for the buyer to buy and isn’t that what the seller is trying to achieve?

This article was reprinted with permission from BizPlanit.com