A Confidential Information Memorandum
A Confidential Information Memorandum (CIM) is a marketing piece designed to help business owners when they are ready to sell their business.
A Confidential Information Memorandum helps buyers understand the following aspects when they are considering the purchase of a business.
- General Business Overview
- Real Estate / Facility
- Historical Data
- Three-Year Financial Recast
- Potential Growth opportunities
Here is a SAMPLE Confidential Information Memorandum.
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Why 3 Years of Financials
Many potential sellers often ask why three years of taxes are needed in order to do a valuation. The simple answer is context. Buyers and their bankers want to see what the growth history has been for your business. Did you have one great year surrounded by two down years or has there been steady, gradual growth? Having three years of financials will give a much fuller picture of the health of your business. It also gives us enough data to give you a weighted average of the Seller’s Discretionary Earnings (SDE) so that we can address nuances in your business life cycle.
What About Potential Growth and The Importance
Often, we get asked how valuable is the potential future growth of a business. While it is certainly encouraging to hear that the future of your business looks bright, buyers and their bankers almost exclusively focus on the past performance of your business. If you have signed several new clients in recurring revenue contracts the buyers will take this into consideration. This can cause them to look favorably on your business, even though it is not what they use to formulate the actual value of your business for the purpose of purchase or lending.
One Other Very Important Feature of the CIM
Within the CIM, this would be the financial recast summary. This includes two pages extracted from the full recast. These two pages are the income and expense snapshot and the Sellers Discretionary Income summary. This abridged version of the recast is intended to whet the appetite of a potential buyer. Naturally, they are going to have many questions about the financial health of your business. The recast summary gives the potential buyer just enough information to scratch that itch but not enough to give them full relief. It leaves them wanting more and fulfills the purpose of the CIM which is to set the table for a buyer/seller meeting.
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We would love to meet and talk with you and learn about your business. Every business owner needs an exit plan at some point. Please call us and we are happy to run a complete Business Valuation for you at no cost. We look forward to establishing a relationship with you and serving you as you make informed decisions about your business when the right time is for you to exit.
Call me (Sherri Ferguson) at (919)-424-4363 or email me at sferguson@tworld.com
