Information Memorandum - Creating The Confidence To Move Forward

An Information Memorandum is probably the most essential document you’ll need to sell your business. This document is what they’ll use to make a decision, on whether to move forward and have a conversation with you. It’s the equivalent of your shop window.  If it doesn’t look appealing to a potential buyer, they won’t come inside.


It generally provides an overview of your business, giving any potential buyer the information and the confidence they need, to move the acquisition forward.  The areas covered are as follows:

  • Financial overview

    • Sales figures

    • Past three years accounts

    • Financial projections

  • Company history

  • Staff members

  • Clients

  • Products & services

  • Market niche

  • Reason for selling

  • Terms of the companies products & services (payment)

  • Certifications, awards, accreditations, licences

  • Physical assets

  • Intellectual property

  • Organisational chart


Let’s look at each of these individually.


Financial Overview.

This will give details about the companies financial performance over the last three financial years.  It should provide high level summaries for Turnover, Adjusted EBITDA, Total Assets, Total Liabilities, & Net Asset Value.


Next it should include Sales figures.  If the business made up of multiple divisions or seperate service offerings, these could be shown individually.  This should represent the last 3 financial years.


Include the previous three years full accounts.  These could be in simplified format to highlight Total sales, Gross Profit, Operating Cost, Directors remuneration, Pre-tax profit, & Net profit.  It should also include the balance sheet for the past three years, but also more importantly, an up to date balance sheet to reflect the situation today.


It will include financial projections covering projected sales, & Pre-tax profit for up to 5 years.


Company History.

Within this section, a brief history of the business detailing when the company was started, the type of customers it has served, and an opportunity to share your story.


Staff Members.

In summary graph form, this should state total staff employed in the business, in the last 3 years.  In detail form, this will be in the form of a spreadsheet document, stating which staff are employed, their qualifications, start date, current role in the business, Date of Birth, Total Salary, Car / Travel Allowance,  contracted hours of work, holiday entitlements & other benefits.  This should not include staff names, but instead a unique ID, for example ‘Employee 176’.


Clients

As part of preparing this document, you’ll ideally list every client into a spreadsheet document, alongside the total spend, and the gross profit for that spend.  Alongside each name, you’ll then identify which sector or industry they belong.  For example, Retail, Hospitality, Public etc.

This can be seen below:




Industry

Total Sales

Gross Profit

% Turnover

Company A

Hospitality

£150,000

60%

15%

Company B

Healthcare

£150,000

55%

15%

Company C

Retail

£100,000

45%

10%

Company D

Retail

£100,000

45%

10%

Company E

Public

£300,000

55%

30%

Company F

Retail

£200,000

50%

20%

Total


£1,000,000





At this point you will substitute the names of each client as in the example, ‘ABC Construction Ltd has been substituted with ‘Company C’.

Within each Company, you’ll then list all contracts that the company have with your business, including the status of each contract, and the start and end dates of each contract.  This can be seen as below:




Client

Contract Details

Complete

Start Date

Expiry Date

Total Value

Company A

Contract 1372

70%

1st Jan 2012

31 Dec 2021

£100,000

Company A

Contract 1564

25%

1st Jun 2017

31 May 2020

£50,000


As part of this process, within the document, you’ll present a basic table and graph to identify the client breakdown as above, and also the industry breakdown as follows:





2015

2016

2017

Industry

Sales (£k)

%

Sales (£k)

%

Sales (£k)

%

Public

150

27%

250

33%

300

30

Retail

200

36%

250

33%

400

40

Hospitality

150

27%

150

20%

150

15

Healthcare

50

9%

100

13%

150

15

Total

£550,000

£750,000

£1,000,000



Products & Services.

What products & services are currently offered to customers at the moment.  These should be identified as packaged services already being provided currently, or historically.  The company must be accredited or qualified to provide this service immediately, for example:


  • Electrical Installation

  • Electrical Maintenance

  • Fire Alarm Installation

  • Fire Alarm Maintenance

  • Gas Services - Commercial (Sub contracted)


The easiest way to complete this exercise, is to look through your previous customer order book, and highlight the type of service offering that they purchased from you.


Market Niche.

If you have established a market niche, it should be stated in this section.  For example, one of your market niches might be Hotels within a 30 mile radius of M10 postcode.  Another niche might be New housing developments of more than 30 units.


Reason for Selling.

State your reason for selling the business now.  For example, this might be, ‘For retirement’, or it could be ‘The business requires a large investment to continue its current phase of growth’.


Terms of the Companies Products & Services.

When do you normally get paid.  This may state Payment on order, Payment on delivery, 30 day credit terms, 60 day credit terms, etc


Certifications, awards, accreditation's, licences.

What certifications does your business have.  Which awards have you won, which accreditations have you got, and do you own or operate any licences.  Details should be provided including annual cost, start date, expiry date, Revenue generated from each.  Eg.  If you are the sole licensee for an equipment manufacturer, you might pay £200,000 per year in licence costs, and the revenue generated for the business may be £1,200,000.


Physical assets.

What tangible assets does the business have.  A register of assets as recorded for the balance sheet should be included here.


Intellectual Property.

What items of intellectual property does the business own.  This can relate to anything on the intangible assets section of the balance sheet.


Organisation Chart

A basic organisation chart detailing the structure of the business, with each member highlighted from the staff register.


In the next post, we’re going to look at the final piece of the jigsaw, you’ll need to sell your business. ‘Professional Adviser Team - Your Dream Team for Success’  Click here to read it now.



We hope you’ve received some value from this article, and some information that you can use to move forward toward your vision.


If you’re confident that selling your business is the way to go, or perhaps you’re undecided, it’s important to consider the significant amount of effort and resource you’ll need to make it happen.  It’s a full time job. - The time investment alone is enough to put anyone off.  So imagine for just a minute, that you didn’t need to do all of this work.  What if this could be done over the next 3 - 5 years (by someone else).  Everything we’ve listed in this article, is what you’d need to do, if you were selling through a business broker, or direct to a buyer.


Unlike other private equity firms, our focus is on growing businesses at the smaller end of the market.  We’ve worked in, and grown our own businesses in the exact same fields you work today.  We’ve spent years coaching and supporting small businesses just like yours, developing their teams, and helping them to grow, but now, we’d like to help you.  


We have a solution for business owners that need to sell their business immediately, or for those who want to stick around for a few years.

If you’re considering the options to grow or sell over the next five years, read more about how we're helping others just like you. Click here to read about our unique approach to helping you get what you want with the YokeFormula™ for your business.

Click here to learn more about the YokeFormula™ for Property Service Companies

Click here to learn more about the YokeFormula™ for Business Services Companies

Click here to learn more about the YokeFormula™ for Hospitality Companies

Click here to learn more about the YokeFormula™ for Healthcare Companies


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