You’ll have written many business documents over the years. Few will be more important than a business Sales Memorandum. Due to its significance, ExitAdviser has produced an online tool, and a document template, to make it easier for you to write your own Selling Memorandum.
Create your own Selling Memorandum with the tool, or template:
This guide explains the Sales Memorandum in terms of its:
- fit within the sale process
- completion using the ExitAdviser tool
Let’s take each of these in turn.
Purpose of the Sales Memorandum
There comes a point in the selling process where you must disclose more details about your business. More than a few words in an online business listing. Even telephone conversations with a prospective buyer don’t carry the same weight as something written down in an official document. And you need to be watchful with what you write in emails, because you may live to regret any careless, loose wording.
For the buyer, the more money involved, the higher the risk, and the greater the hunger for substantiated information about the business. You on the other hand, are keen not to give your secrets away too early when there’s no commitment on the buyer’s part. If this confidential information were to leak into the wrong hands it could be very damaging to your business. Things like pricing policy, customer names and trade secrets.
The Sales Memorandum aims to strike a realistic balance between these important considerations. It’s not your Business Plan. But then it’s not a sales brochure either. It’s somewhere in between.
It’s also why a Sales Memorandum is used hand-in-hand with a Non-Disclosure Agreement (NDA). You are strongly advised not to distribute the Sales Memorandum to a prospective buyer without first receiving a signed copy of an NDA. This legally binding document forbids them to pass on any information contained in your Sales Memorandum to a third party without your prior agreement.
Related: Legal Steps to Selling a Business
Another useful tip is to give each Sales Memorandum document a unique number, published on each page, before releasing it to a prospect. To demonstrate that you’re serious about protecting your proprietary knowledge.
Lastly, the Sales Memorandum can serve a number of other useful purposes.
It finalizes your sale proposition, the key selling points, and drives the promotional messages used in your advertising. For example, the circa 20-word business summary for your online advertising, and extracts from the summary section that may be used in your initial email responses to prospects.
It also ensures that all prospective buyers receive the same information in a consistent way. And it focuses you on a clear "story" that can also be summarized in a PowerPoint presentation for use later in the communication process. It’s a useful checklist for gathering the detail needed for Due Diligence and for updating key plans. For example, Business, Sales and Marketing, and your proposed Transition Plan for a smooth transfer of ownership. The latter will be of particular interest to the buyer.
By adding pre-qualification criteria in the "Terms of Sale" section this can also act as a further screen to weed out unsuitable candidates. However, it’s preferable to use other ways to discourage these people earlier in the process, to avoid distributing too many Sale Memoranda.
Video: Stone Carlie’s St. Louis middle market M&A services group has put together an informative video about how to create a Selling Memorandum for a business for sale.
Role in the selling process
The Selling Memorandum is the first real detail the buyer receives about your business. It will be requested at some time following responses to your advertisements. In all likelihood, you will first have an introductory phone call or meeting with a prospective buyer. It’s then that they will sign and return an NDA copy before they get sight of the Sales Memorandum.
Don’t under-estimate this document’s importance later on in the sale process. A serious buyer, once they have signed a Letter of Intent, will want to carefully validate the Sales Memorandum content during Due Diligence. Any major discrepancies they find could easily cause them to change their mind. Some of the content may also appear in later legal sale documentation, which you will be required to sign as a true reflection of the facts.
Again there’s a balance to be struck. Whilst it’s important not to mislead a prospective buyer (for all the above reasons), highlighting your weaknesses in the Selling Memorandum is to be avoided. All businesses have weaknesses. Let the buyer find them during the Due Diligence process.
Clearly, the Sales Memorandum also has a promotional role. However, it’s important that it stays factual rather than an overt sales tool. Let the facts speak for themselves, and persuade.
A professional, well written and presented, concise, an informative document will impress a prospect and may set your business apart from others they are considering. Use plain English and avoid industry jargon.
If they’re serious, then expect questions for clarification. Again be careful not to give too much away at this stage. In particular, exclude confidential facts and figures that they’ll undoubtedly probe you for later.
You could always suggest that they sign a Letter of Intent, to find out all they want during Due Diligence.
Successful selling requires an understanding of the buyer’s perspective. That is, the psychology of the situation from both sides of the fence.
Related: Tips to Negotiate Your Business Sale
If you were in their situation, what would you want to know? Think for a moment about the important details. The what?, who?, when?, where?, why?, which?, how much? Compare this with what you're happy to reveal at this stage, given that a preferred buyer will have the benefit later of the "forensic" Due Diligence process.
ExitAdviser follows common best practice with its Sales Memorandum Tool. The next section covers how the tool works.
It’s really important to entice a prospective buyer to read on following a good Summary section at the beginning of the Sales Memorandum. Spend time getting this Summary right, only including the important information that shows your business in its best light. As mentioned earlier, this Summary section also drives other key communications in the sale process.
For now, let’s just deal with the headings of the Selling Memorandum and some of the key information you need to include:
- Cover Page, standard information
- Brief business highlights
- Plans to address future developments
- Asking price and terms
The Cover Page contains the basic name and contact details, and the unique document number that appears on all pages. You may want to keep contact details fairly general at this stage if the business sale is confidential.
The Summary section starts with a couple of punchy sentences to sum up what your business does, the main product and target customers, and the essence of why your business is an attractive proposition compared with alternatives. Following this, basic ownership details and a plausible reason why you've decided to sell the business at this time.
Business Highlights presents any further advantages over the competition, as well as the key achievements. Summarize sales and earnings growth trends over the past 3 years and year-to-date, referring to graphs in an Appendix. A few key facts about the market, and trends affecting it will also interest a buyer.
Future Developments may not be at the forefront of your thoughts now, but it helps your cause here to demonstrate that you understand the opportunities and challenges ahead in the business. And have contingency plans in place.
Asking Price and Terms includes what type of sale it is (assets only, all shares or inventory) and how you expect to receive payment of your asking price (e.g., part cash, part loan). It’s a chance to include your required buyer qualifications, and any commitments to ensure a successful business transfer.
Related: Assets Sale vs Selling Shares
Appendices, as it’s good practice to move any detail to an Appendix, to maintain clarity and thrust for the core persuasive arguments and highlights in the main body text. The reader can always check the detail if you reference the appropriate Appendix. They can also find copies here of your "Non-compete Agreement" and "Sellers Disclosure Statement".
The Sales Memorandum Tool
ExitAdviser simplifies the task, making a Selling Memorandum easy to create. And you can do it bit-by-bit if you wish, saving your work as you go along. Whether you are at home, in the office, or on the move.
For each Sales Memorandum section, the tool breaks the content down for you into a series of simple questions, which are presented to you one-by-one for you to answer. You fill in short bullet point responses to ensure your answers are simple and concise.
When you've finished each section, ExitAdviser automatically collates the material in a professionally presented format. This builds to the finished Sales Memorandum document. There's also the option to output the key points to PowerPoint presentation slides.
You still need to do your homework first, to ensure that the Sales Memorandum content has maximum impact.
Because of legal implications later on in the sale process, it’s advisable to run the document past your attorney before signing it off for distribution.