Sell
Your Business Tips, Hints & Techniques:
Enter
your name & e-mail address below and each week I'll send you
detailed tips, facts, resources & ideas you can use right
away to help sell your business faster and for more money.
Step
1 - Preparation
Selling
Memorandum
The
Selling Memorandum is an important sales tool that you
will give to the buyer early in the process (but only after
they have signed a confidentiality agreement). It should be
a detailed and truthful overview of your business.
It
should also be positive and compelling.
Consider
it a brochure for your business. It is the first thing
you give the buyer after they respond to your business-for-sale
ad and it is the key to making a good first impression.
It
will also serves as a reference guide that the buyer may refer
back to again and again over the course of the selling process.
We
will discuss two types of Selling Memorandum - a highly detailed,
Full-length Selling Memorandum that is appropriate for
most businesses with sales over $200,000 and a Summary Version
or Mini Selling Memorandum that is shorter and appropriate
for many single proprietorships, most single-location restaurants
and retail businesses and most simple service businesses with
few employees. Click
here for a discussion and an example of a selling memorandum
in the summary version
There
are no hard and fast rules about what must be in your memorandum.
If some of what we discuss below doesn't apply to you, feel
free to skip over it.
We
will also touch on ways you can explain and minimize
any negatives about the business.
As
you will see, the full-length version of the memorandum can
be very detailed - it is not something you throw together in
half an hour.
You
should take your time and put plenty of thought into
what you will say and how you will say it.
A
Selling Memorandum should serve two important purposes:
1.)
It should raise the buyer's enthusiasm level for your
business.
2.)
It should justify the asking price.
(At
the end of this section we will give you some tips and advice
on the actual writing of the memorandum and this should help
you get your thoughts down on paper in an organized and interesting
way.)
Full
Length Selling Memorandum
Here
are the 9 sections you may want to include in your Selling Memorandum:
1.)
Executive Summary - This section gives the reader a thumbnail
sketch of your business. It can be as short as a few paragraphs
but need not be longer than two pages.
The
executive summary should answer the following questions:
What products do you sell or what service do you provide? If
you have a large product line you may want to only mention the
products/services that produce most of your revenue.
For
how long have you been in business?
What
exactly is for sale? Is real estate included? Vehicles? Or is
it simply your client list and inventory. If it is a retail
business, how many locations are included?
You
will include actual financial statements later, but in this
section at least include the total sales and profits figures
for the last 3-5 years. You should use your recast
financial statements for these figures and you should label
them that way.
I
recommend that you also address why the business is for sale.
(That question will certainly be on the mind of the buyer) Try
to be as positive as possible. It can be as simple as one sentence:
"Owner wishes to sell the company in order to pursue other
business ventures".
It
can even be covered with one word: "Retirement".
2.)
Company History - Who started the company? What was the
founder's vision at that time and how has it evolved? What are
some of the growth milestones that the business has reached
along the way? If new partners or investors have come on board
since the beginning, who are they and how have they contributed
to the company's growth?
3.)
Marketing & Advertising - What advertising and marketing
activities are you undertaking? If positive word of mouth plays
a big part in attracting customers, mention that. If you get
a lot of walk-ins due to heavy traffic outside your store, mention
that.
Are
there any new and exciting marketing/advertising opportunities
that you would pursue if you were to continue to run the business?
Mention them here and say why you think this avenue can boost
sales.
Does
your company occupy (or dominate) a specific niche or position
within your industry or local market?
4.)
Company Strengths - What advantages do you have over the
competition? Are you known among your customers for being particularly
good at something? Do you have exclusive or unique products?
Indicate if you have any patents, copyrights or intellectual
property.
If
you are a retail outlet, is the surrounding area growing, or
the demographic you serve growing? Are there any new hot products
coming out that will improve sales?
If
it is a franchised business, what plan does the Parent Company
have that will grow the business? Is the franchisor a recognizable
name with a good reputation and financial strength?
List
any positive changes going on in the industry: breakthroughs
in technology, pending legislation, growth in a particular demographic.
5.)
3 Years Of Historical Financial Performance - You don't
need to include complete financial statements, just some highlights
that show in numerical terms that the business is growing. If
sales, profits and the owner's benefit have been trending upward
you can list them here. Show 3-5 years worth of information
from your Income Statements. Use pretax numbers and don't include
interest as the taxes and interest the new owner pays will be
different.
6.)
Projected Future Financial Performance - If you can make
compelling and fact-based projections of what the business can
do in the future, you may want to include this section. Be conservative
and base your projections on facts about your market and industry.
Explain fully how you arrived at your projections.
Making
pie in the sky projections can ruin your credibility. And throwing
the word "Guarantee" around can get you sued. But,
if you can make a credible case for solid future growth then
you want to include it.
7.)
Price & Terms - Explain how you arrived at your asking
price. Anything about your valuation that is conservative should
be pointed out. Also, discuss any financing terms you are willing
to offer. Even if you are open to negotiating the terms, set
down the minimum requirements so you eliminate those people
who have no money. For example. "The owner is willing to
negotiate the exact financial terms of the sale, but will require
at least 30% down and a financing term of no more than 60 months".
8.)
Review Of The Opportunity - In just of few sentences, reiterate
why this is a great opportunity. List the top 3 or 4 most attractive
features of the business and why you think the future of the
business is even better than it's past.
If
you like, you can include a few words about why you are proud
of this business. What it has meant to you and your family.
And why you are committed to helping the new owner successfully
take over what you have started.
9.)
Attachments - Here you would include any brochures or other
product literature, any press clippings that mention the business
favorably and any photos of the facilities. Any information
on industry trends or research can be included in this section.
If your business is a franchise, any literature from the Franchisor
should be included here.
Dealing
With Negative Information
**
Weaknesses - Address any weaknesses the business has
or has had that are now fixed. If last year the sales and profits
dipped, explain why and what has been done to fix
things. If the business has been down for the past couple
of years, it's a good idea to put the blame on yourself instead
of the industry, the economy or any other reason.
No
need to go in to great detail now, just a single sentence
stating that you are burned out or past due for retirement.
You don't want to turn the buyer off at this point but you can't
hide the obvious if sales have been decreasing. Acknowledge
any such problems simply and then when you meet face to face
with the buyer you can give a more detailed argument
for why the business' future can be brighter than it's recent
past.
**
Possible Buyer Concerns - Don't be afraid to be honest about
what talent the buyer should bring to the table - if there is
a lot of customer contact, travel or technical knowledge required,
say so. Better to have an incompatible buyer find out now
than latter.
This
can be addressed in the Executive Summary when describing the
business. For example, you can say something like, "This
is a great business for someone who thrives on a lot of customer
contact".
A
buyer who is new to your industry may have unnecessary fears
that there is too much to learn or that they are not qualified.
You may want to mention how easy it will be for someone outside
your industry to get up to speed and if applicable, what training
you are willing to provide.
Some
Tips To Help You Write Your Selling Memorandum
Does
the thought of sitting down and putting this information on
paper make you uncomfortable? Don't worry, you are not alone.
Lots of business owners can talk a persons ear off about their
business. But asking them to write that same information down
and they break out in a cold sweat.
Here
are a few simple things you can do to get what
you know in your head down on paper.
1.)
Take a separate sheet of paper for each of the 9 categories
above and brainstorm each of the facts about your business that
belong in that section.
2.)
Write everything down that comes into your mind - don't edit
yourself (not yet anyway)
3.)
When you have a good list for each section, combine things that
are similar and cross things off the list that are redundant
4.)
For each feature/element you've listed, write a few sentences
about the feature. Don't feel like you have to discuss every
last detail of your business - that's impossible
to do and it will result in a very tedious memorandum. No matter
how much detail you give you will get follow-up questions from
the buyer. This is a good thing. It gives the buyer a reason
to pick up the phone and call you which is what you want.
5.)
Put things in the form of a list or bullet points
if it is easier
6.)
Set aside what you have created so far and come back to it in
2-3 days. You will think of things you hadn't thought of before
that you will want to include. And you may want to delete anything
from the previous draft that seems trivial or less important.
You will also want to rewrite anything that upon rereading it,
seems unclear, misleading or unnecessary
7.)
Give it to your spouse or partner to read. Is it clear, does
it make sense to them? Have you left anything out? Could some
things be said in fewer words? Or said with more positive
language?
8.)
Proof read it for typos and spelling errors several times.
An
Added Benefit Of The Selling Memorandum
Putting
in the effort to create a Selling Memorandum will crystallize
in your mind what is truly special about your business,
from the standpoint of the business buyer, not your customers.
Putting things down on paper will force you to clarify what
are the real keys to your success, and what are the opportunities
for growth, both in your business and in your industry.
And
you will begin to see the strengths and weaknesses of your competition
more objectively.
Of
course, you know your business inside and out. But do you know
how to explain it to a perfect stranger in a way that
will get him excited about owning the business. You may
be great at selling your company's products, but selling the
company itself is a different sale pitch altogether.
Can
you anticipate the fears and concerns a buyer who doesn't know
anything about your business may have? Can you paint an enticing
picture of the industry's future and your company's place
within it?
After
you have put together your Selling Memorandum you will be able
to do all this much more effectively.
Sell
Your Business Tips, Hints & Techniques:
Enter
your name & e-mail address below and each week I'll send
you detailed tips, facts, resources & ideas you can use
right away to help sell your business faster and for more money.
NEXT:
Step
2: Business Valuation And Developing A Price Range
The
Six Steps To Selling Your Business
Step
1 - Preparation Step
2 - Valuation Step
3 - Finding Buyers
Step 4 - Structure The
Sale Step 5 - Due
Diligence Step 6 - Closing
