The Confidential Information Memorandum: What Goes In It and Why

What it is for

The CIM answers the questions a serious buyer asks in the first meeting, so the first meeting can go further. What does the business do. Who buys from it and why. What does it earn and how is that calculated. Who runs it day to day. Why is the owner selling. What would a new owner need to do. What is the price and what supports it.

A buyer with those answers can decide in an evening whether to request a meeting. A buyer without them either asks twenty questions by email or moves on to the next listing.

The sections

Summary. One page. Business type, location, revenue, SDE, employees, years in operation, reason for sale, asking price, and the two or three things that make this business worth looking at. Many buyers read only this page before deciding whether to read the rest.

Business overview. What the business does, in plain terms, for a reader who is not in the industry. History and ownership. Products and services with revenue by category. The customer base: who they are, how many, how long they stay, and concentration. How the business gets customers. Competitive position and who the competitors are.

Operations. Location and facility. Lease terms, since the lease is a closing condition. Equipment and vehicles. Systems and software. Licenses and permits and which transfer. Vendors and any key supplier relationships. Hours, seasonality, and capacity.

Team. Org chart with roles, tenure, and compensation, names withheld until later in the process. Which employees are key and what has been done to retain them. The owner's role, described honestly, with the hours and the functions a buyer will need to fill.

Financials. Three years of revenue, gross profit, and operating expenses, plus the trailing twelve months. The add-back schedule with every item listed and explained. SDE and adjusted EBITDA by year. Margin trends. Balance sheet summary. Anything unusual in the numbers, explained before the buyer asks.

Growth opportunities. Two or three specific things a new owner could do that the current owner has not, with a reason why not, rather than a list of everything imaginable. A buyer discounts a section that promises the moon.

Transaction. Asking price and its basis. What is included: equipment, inventory, goodwill, receivables, working capital. What is excluded: real estate, personal vehicles, cash. Preferred deal structure. Transition and training the seller will provide. Timing.

How buyers read it

They go to the financials first. Experienced buyers flip to the add-back schedule and check whether each item is the kind of thing they would accept. Then they look at the trailing twelve months against the prior year. Then they go back to the front and read the rest.

They look for what is missing. A CIM that does not mention the lease, does not give the owner's hours, or does not explain a revenue dip is telling the buyer where the problems are. Sophisticated buyers read omissions as disclosures.

They compare the story to the numbers. If the overview says the business is growing and the financials show flat revenue, the buyer trusts the financials and stops trusting the overview.

What produces offers

Specifics. "Customer retention of 91 percent over the last three years, measured by annual contract renewals" gets an offer. "Loyal customer base" gets a question.

Honesty about weaknesses. A CIM that says "the owner currently handles all estimating, and the buyer will need to hire or become an estimator, at a market cost of approximately $85,000" and then shows adjusted EBITDA with that cost included, is believed. A CIM that hides it gets found out in diligence and the price gets renegotiated.

A price that matches the numbers. Buyers can do the math. If the CIM shows $400,000 in SDE and asks $2 million for a business in an industry that trades at 2.5 to 3 times, buyers assume the seller is unrealistic and many of them do not bother making an offer at all. A price at the top of the defensible range invites offers. A price above it invites silence.

Length that fits the business. A $1 million business needs 15 to 25 pages. A $10 million business needs 40 to 60. More than that is not read.

How we write it

We write the CIM before the business goes to market, from the financials and the owner's intake, and the owner reviews every page before a buyer sees it. Every number ties to a source document that will be in the data room. Every add-back is one a lender would accept. Every weakness a buyer will find in diligence is disclosed with its mitigant next to it.

The document is watermarked to each recipient and released only after an NDA and buyer profile. Buyers who have read it come to the first meeting with a term sheet in mind rather than a list of basic questions, which is the difference between a twelve week process and a nine month one.

A page from a good one

Here is how a customer section reads when it is written properly, using a fictional commercial cleaning company.

The company serves 62 commercial accounts, primarily office buildings, medical facilities, and schools in the San Fernando Valley. Contracts are annual with automatic renewal and a 60 day termination notice. The largest account is 9 percent of revenue and the top ten are 47 percent. Average account tenure is 6.4 years. Retention over the last three years, measured by contract renewals, was 94, 91, and 93 percent. Four accounts were lost in the last three years, two to the customer's relocation and two to price. Eleven accounts were added in the same period, all from referrals and from the company's relationship with two property management firms. All contracts are assignable to a successor on a sale of the business.

Every sentence in that paragraph answers a question a buyer would otherwise ask, every number is checkable against the customer list in the data room, and the two weaknesses, the price losses and the property management dependence, are stated rather than hidden.

What a weak one looks like

"The company has a loyal, diverse customer base built on decades of relationships and a reputation for quality service. Customers include some of the most respected organizations in the region. There is significant opportunity to grow through expanded services and new markets."

A buyer reads that and learns nothing. They also learn that the seller either does not have the numbers or does not want to share them, and both are bad.

Who writes it

The owner supplies the facts through an intake process and reviews every draft. We write it, because an owner writing about their own business either undersells it out of modesty or oversells it out of pride, and neither produces offers. The financial section is built from the add-back schedule and the valuation, so it matches what the buyer will find. The growth section is limited to what the owner can defend in a meeting.

Before you write yours

If you are preparing to sell and want to know what your CIM would say, start by writing the summary page yourself. Revenue, SDE, employees, reason for sale, and the three things a buyer should care about. If you cannot fill in the SDE line with confidence, that is the first thing to fix. If you cannot name the three things, the business may need a year of preparation before it goes to market.