Offering Memorandums, also known as Confidential Information Memorandums, are documents that provide potential buyers with information about a business that is for sale. They are used to help buyers decide if they want to take the next step and start to really dig into a business. This article will provide an overview of the process of inquiring about a business, from the initial inquiry to the review of the offering memorandum.
Inquiring About a Business
When looking for a business to buy, it is important to do your research. You can find businesses for sale on websites such as Biz Buy Sell. Once you have found a business that interests you, you can contact the broker or seller and inquire about the business. The broker or seller will likely ask you to sign a Non-Disclosure Agreement (NDA) and provide information about yourself, such as how much money you have and if you are qualified to buy the business.
Reviewing the Offering Memorandum
Once you have inquired about a business, you will receive an offering memorandum. This document will provide information about the business, such as the asking price, furniture, fixtures, and equipment, real estate, goodwill, name, phone number, non-compete agreements, website, training, and more. It will also provide information about the financial performance of the business, such as the Seller's Discretionary Earnings (SDE).
The Offering Memorandum will also sometimes include the Broker's Opinion of Value (BOV). It is important to review this opinion carefully, as some brokers may use "funny math" to arrive at their numbers. If the price you come up with is significantly lower than the asking price, it may not be worth pursuing the deal.
The offering memorandum will also provide information about the history of the business and what makes it good or bad. It is important to review this information carefully, as it will help you make an informed decision about the business.
The Next Steps
Once you have reviewed the offering memorandum, you can reach out to the broker or seller with any questions you may have. They may also ask for proof of funds before you can move forward with the deal. Once you're on the phone with the seller, that's your opportunity to build rapport, ask good questions, and if you're really interested, set up your next meeting (often a site visit).
Offering memorandums are important documents that provide potential buyers with information about a business that is for sale. Don't be scared to get out there and ask for the CIM.