Bringing It All Together
In this EClass you will complete the essential step you need to take to finish off your renovation, bring everything together and complete the 12 Week Turnaround!
This final steps will bring everything together and ensure you have a valuable business that is well presented, and ready for sale or future growth.
The Magic “Two-Page Information Memorandum”
An Information Memorandum is an extremely important tool in the sale of a business – it can literally make or break a sale by attracting the right buyers and getting them interested in your business.
It is also a vital document that you should have prepared and reviewed for your business even if you aren’t thinking of selling right away. A good IM will clarify your current business position, highlight strengths and weaknesses, and lay out your future plans and goals.
In this e-class we will show you how to write a great IM – one that could make you a lot of money!
What is an Information Memorandum (IM)?
An Information Memorandum (IM) is a combination of a business plan and a sales document for your business. A good IM is key to achieving a fast and high priced sale – we have seen businesses sell within weeks because of a good IM – but even if you are not thinking of selling just yet, it also serves as an excellent strategic plan and summary document for your business.
For All Business Owners!
We highly recommend that anyone who owns a business use the template in this e-class to create an IM for their business – it’s the easiest and quickest way we know to create the most practical and useful business plan for your business.
An IM is designed to get buyers interested and excited about the business, and makes it easy for them to get all the information they need. A full IM is especially important if the buyer is going to borrow money to purchase your business because it will include everything they need to show a bank.
Remember, your goal is to make it as easy as possible for a buyer to purchase your business, and a good IM lays out all the information for them in an easy-to-understand way – it is very similar to a business plan and emphasises the major benefits and strong points of the business and it’s products or services.
A Good IM Has Several Other Useful Purposes:
- A good IM qualifies buyers and saves everyone time – it will even eliminate inappropriate buyers. For instance, a potential buyer can read the IM and quickly see if the business fits what they are looking for.
- A good IM not only informs the buyer about the business but also is the main step in getting the buyer to further progress along in the sale process. For instance, typically a buyer will review the IM and decide they are interested and want to take it further by going to the next step which would be a meeting with the vendor
- The IM can also be used to eliminate obvious potential objections up front and so disarm them or save time later by explaining up front the issues. For instance, if there has been a big drop in sales in one year then an IM should explain why
- It should give a buyer a background on the industry and how the business works
- It should sell the buyer on its potential and future growth opportunities as well as pointing out/highlighting all its positive aspects, competitive advantages etc -but not sell too hard, just matter of fact
[stextbox id=”info”]IMPORTANT TIP:
Most business owners don’t think of this, but one of the main reasons we don’t write an IM in very “sales” style is because whilst this may sell your business to the actual buyer, in general it won’t impress their advisor.
Remember that a buyer will not be the only person to read the IM for details on your business. This will become the main document they will use to take to their accountant, bank manager and lawyer for advice on regarding the potential purchase of your business.
The IM needs to be written in way that addresses what these professional advisors typically like to see and this is why we strongly recommend you write in in a factual style rather than full on “salesy” style. The full on sales style in our experience does not work with accountants (we have tested this many times). Factual style gets straight to the point and ultimately saves everyone time.[/stextbox]
What goes into a good Short Version IM?
A good IM gives a succinct review of your business strengths and weaknesses, your market, your competition, your suppliers, your products and how you provide them, what makes them different and valuable and their features and benefits, your advertising and promotion, opportunities in the market, your cash flow and financials and your staff and their roles.
Most importantly you need to have your growth and “potential” story sorted and be prepared for discussing with buyers all the positives and some negatives (they will find them!) and potential objections.
In order to create a good Information Memorandum and be prepared for selling your business, we have created the following check-list of questions for you to apply to your own business. Note that we have created this list based on the sorts of questions buyers most frequently want more information on:
Quick Check-list to assist with creating your IM:
- How long has the business been established
- Are you the original founding owner?
- History of company and yourself
- Outline what your business does, what industry, what do you sell or services
- Who are the customers – are there lots of small customers, are there big customers, what is the sales breakdown across the customers, is there a heavy reliance on one or two customers, how long have they been customers, what are the relationships like, are there contracts in place, are they long term repetitive customers, are they likely to stay with you and why, who are the relationships with -do they come from your own personal relationships with clients or from your staff/sales reps, or do they come from the relationship with your business and its good name/commercial relationships
- What are your strengths and what are you well known for – why do people buy from you and keep buying from you
- What is your position in your market? What are you known for?
- How do you run the business? What’s involved day to day? What are your roles as the owner?
- How many employees do you have? What do they do? How long have they been there?
- How technical is the business? If I don’t come from your industry can I still run it? What expertise is needed?
- What is your background?
- Can the business run without you? What sort of hours do you work, how many days per week? Can you be replaced?
- What are the opportunities?
- What are the threats, competition, what safeguards do you have? What barriers to entry?
- Do you have good accounts, accounting software, systems to run business?
- Brief details of any leases – property or equipment
- Last 3 years figures – this is the sort of info you would prepare with your accountant or sales advisor (see step on figs below)
- Turnover/sales: are sales steady, growing, declining – why?
- Gross margins
- What is the net profit?
- What levels of stock do you have?
- How much in debtors? How much in creditors? What are the average debtor days?
- Do you run an over-draft – what level is it at? Do you have cash in the bank?
- How much money does it take to run the business – working capital requirements
- Most important! Do you have a sale figure in mind? Why this amount?
The Art Of Writing an Information Memorandum…
IM’s can be tens to hundreds of pages depending on the size and complexity of a business, but in general we have found that shorter, straight to the point IM’s seem to work best.
After writing many IM’s while business brokering, we created a unique template to make writing a short IM quick and easy. If you purchased the Deluxe or Gold pack, you will have the IM Template pack as one of your included resources.
This weeks task...
This week is your final stage of the 12 week turnaround, and your will be summarizing everything you have learned and implemented in your business, into your IM.
Your task this week is to use the guidelines in this E-Class to write your “Matt and Liz’s Short Version IM” of approximately one to five pages. This short version is often all we needed to sell a business – even multi-million dollar ones!
Keep in mind that the main purpose of the “Short Version IM” in a business sale is to bring out interested buyers – the more clear and concise the information, the more likely it will grab the interest of a potential buyer who is highly qualified.
Creating your “Short Version IM” will also help you get clear about the major benefits of your business, and it’s main weaknesses too. It will also summarise your current position, and your strategies for the future.
Congratulations – you have completed your 12 Week Turnaround!
You now have a level of knowledge that we rarely find in business owners, you should have a business that is running more smoothly, is making more profit, and is more valuable that 12 weeks ago.
The next step is actually preparing your business for sale and learning how you can get top dollar when you sell.
In the coming Eclasses we’re going to reveal our inside broker secrets for listing, negotiating and selling your business for as much as possible. We’ll show you creative ways to structure your business sale and all the options for selling a business.
If you would like to stay with us, just click here to find out more.
Good luck in your business – we’ll look forward to meeting you at one of our workshops!
All the best,
MATT AND LIZ