A confidential information memorandum is a great way to attract potential buyers. This document makes the sales process easier for both sides (the buyer and the seller) as it displays your company’s information in an easy-to-understand format. In this review, we take a close look at the role and importance of a sell-side confidential information memorandum.
What is a Confidential Information Memorandum (CIM)?
A confidential information memorandum (CIM) is a summary of your company that is presented to potential buyers. It summarizes the most important details of your company. More specifically, it addresses the most common questions potential buyers have. The specific topics that are covered in a CIM may include:
- Executive summary
- The company’s history
- The company’s assets
- Financial data
- Growth potential
- Work processes
- Facilities and real estate
As the name implies, a CIM is also a “confidential” document. This means that information within the document is protected. This is usually done by having potential buyers who view your CIM sign a non-disclosure agreement (NDA). Additionally, your CIM may not include specific information such as your business name or precise location. An asking price may or may not be included as well. Any essential information that is not included in your CIM is usually made available in the next stage of the sales process.
Why is a CIM Important for Business Owners Who Are Selling?
As mentioned, the primary purpose of your CIM is to help buyers quickly gather the information they need. The ideal goal is for them to move to the next step in the sales journey, which is to request more information that they can use to formulate an offer for your company.
Therefore, a CIM that is clear and concise helps encourage business owners to move to the next stage. On the other hand, attempting to sell your company without a well-crafted CIM makes it challenging for potential buyers to learn the information they need to feel comfortable moving forward.
What are The Benefits of Creating a CIM?
A CIM is essential and beneficial for business owners who are selling their company. Notably, a CIM creates more interest among potential buyers, allows for faster response times, and helps the seller maximize the final sale price.
Benefit #1: An engaging CIM creates more interest in your business
It is not unusual for a company with a well-crafted CIM to receive offers from a dozen or more potential buyers. This creates competition for your company, which can ultimately increase the sale price and/or ensure you are able to find a buyer who meets your non-financial goals.
Benefit #2: Allows for Faster Response Times From Qualified Buyers
With a professional CIM, potential buyers are quickly able to learn about your business and decide if it is a “go or no-go” when it comes to making an offer to purchase your company. On the other hand, a lack of a CIM means the potential buyer will need to ask a variety of clarifying questions and there may still be ambiguity as to what value your company offers and if it is (and can be) profitable long-term.
Benefit #3: Helps Maximize The Final Sale Price
A professional CIM shows that you are organized and able to provide justification for your asking price. Additionally, it sparks interest among qualified buyers so they can clearly see the value and envision the future growth of the company. This goes a long way to maximizing your sale price. As discussed, a CIM can also help create competition among potential buyers, which further raises the sale price.
How Can I Create an Engaging CIM for My Business?
A CIM is intended to be informative and highlight both the bright spots and the problems your company faces; honesty is the best way to attract a potential buyer, rather than only showing them the highlights. Here are a few tips to keep in mind when creating your CIM. Of course, the best way to ensure a quality document is to work directly with a business broker who understands how to craft an engaging CIM.
Be Concise and Offer Valuable Insights and Information
Put yourself in the shoes of the buyer; the last thing you probably want is to spend hours (or even days) reading through a complicated and poorly organized CIM that is simply too long. Unfortunately, this is a common mistake that many sellers (and their brokers) make. You do not need a 50-page CIM. Trust me, they are not impressed by a long CIM. In fact, the opposite is usually true, and it turns potential buyers away in many cases. Instead, offer clear and straightforward information without any fluff or unimportant information.
Focus on The Facts and Figures
As mentioned, you do not want to try and sell your company too hard in the CIM. A sales pitch is simply not what buyers are looking for in a CIM and it can turn many potential buyers away from making offers. Instead, focus on the facts and figures. Your real data tells a story of its own.
Of course, you can offer explanations for the facts and figures as well. For example, if your company performed poorly since the pandemic, then explain this and highlight why the company is still highly valuable and expected to have great financial success in the years to come. Transparency combined with an optimistic outlook can go a long way to earning buyers’ trust.
Highlight Your Brand and Unique Competitive Advantage
Your financial numbers (and other forms of data) are often at the forefront of the conversation. However, it is far from all that buyers care about when reviewing a CIM. They also want to know what sets you apart from the competition. For instance, you may have an experienced and loyal workforce that can help make the transition of the company easy for the buyer. In other cases, the company may have a unique advantage in a growing sector of an industry, which the buyer could capitalize on moving forward.
Learn More About CIMs and The Sale Process from Sigma Mergers and Acquisitions
If you have questions about the sales process (or CIMs, specifically), then contact us today. We are glad to provide you with all of the information to make informed decisions about your exit strategy. We also offer free, no-obligation business valuations, along with assisting with every step of the sales process.