The Confidential Memorandum; A Brokers Tool for Marketing

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Hello, on behalf of Florida Business Exchange, I would like to welcome you to “The Confidential Memorandum.”  This is one in a series of videos from Florida Business Exchange that cover the basic steps you will encounter in selling a business.

I am sure you have heard the axiom, “no job is finished until the paperwork is done.”  Well, in preparing a business for sale, the process cannot start until the seller provides the intermediary with all the necessary paperwork. Before a buyer spends time and money to see your business, they will want to look over basic facts and figures and compare your business to others on the market.

Business buyers often perceive purchasing a business much like purchasing a stock.  They are both investments.  And, if you have ever purchased a stock or mutual fund, you likely have received and perhaps read the company’s prospectus.  The prospectus contains valuable information about the company.  You can read about the company’s history, profits, executives, operations and so forth. It is used to provide potential buyers with essential information about the  company.  A competent intermediary uses a similar document.  Instead of calling it a prospectus, we call it a confidential memorandum.

The confidential memorandum is the focal point of the intermediary’s campaign to market your business to buyers once they have been qualified.  The confidential memorandum provides an excellent summary of the business including a description and history of the company, several years of financial performance, an overview of operations, facilities owned and leased, opportunities for growth, the competitive landscape and more.  It is your intermediary’s job to complete the confidential memorandum and review it with you to ensure its accuracy.  However, to complete the confidential memorandum, you will need to supply the data.

Prior to signing the listing agreement, you provided your Florida Business Exchange intermediary with three or more years of financial history, that is, tax returns and/or profit and loss statements and the latest balance sheet, all property and equipment lease agreements, and a list of assets to be included in the sale.  These items were required to value the business and create a listing summary.  These items alone are likely not enough to properly market your business.  To complete the confidential memorandum, the intermediary will want to know your company’s history and all about the key areas that drive your business.  These areas may include human resources, operations, purchasing, inventory management, sales & marketing, R&D, building and equipment maintenance, IT, public relations and customer service.  The intermediary will need to know what licenses and permits are required to operate the business.  They will need to know if there are any pending or unresolved audits, investigations or lawsuits.  The bottom line is you need to be up front about everything regarding your business.  Nothing chases a buyer away faster than a surprise.

Providing all of this information may seem a bit overwhelming at first; however, your Florida Business Exchange intermediary has the experience to guide you through the process of collecting the appropriate documents and information.  The good news is once the information is assembled, it will help your intermediary market your business, it will help buyers better determine if the business interests them, and it will help you answer and be prepared to support questions from prospective buyers before and after an offer is made.  Don’t be afraid to ask your Florida Business Exchange intermediary, or other intermediaries, for a sample of a confidential memorandum they have prepared.

Again. On behalf of Florida Business Exchange, I would like to thank you for listening.  If you have any questions regarding selling your business, please do not hesitate to contact your Florida Business Exchange intermediary for a complimentary consultation. I wish you the best of luck in pursuing your business dreams, and having our team of professionals helping you through the process.


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