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Something that any one of our team here at Apex can be working on in a given day is a Confidential Information Memorandum (CIM). This is a detailed document that confidentially presents a firm’s operations, financial performance, market position, and growth potential to qualified buyers. This document should generally be enough for a possible buyer to move to the next step, which can include a meeting with the seller.
A CIM is both a marketing document to pique the interest of buyers and is a guide to showcase the growth potential of a business. The best CIMs have an engaging narrative but also use numbers to indicate inherent value and hidden, future value.
NDA
We’ve spoken about this before: an NDA is a necessary part of the business buying process. We have to safeguard our sellers from competitors who could be using the disguise of “interested buyer” simply to grab information and possibly even poach clients. Here at Apex, we do not distribute CIMs without NDAs. All a potential buyer could receive before an NDA would be a teaser, not much more than what they would see from our website ad.
Structure
Most CIMs use a similar structure, which might include, but would not be limited to:
- Executive Summary: This should include, at a minimum, revenue, EBITDA margins, cash flow, and profitability, as well as the key product/service offerings
- Market Overview: market size, trend of various product lines, growth trends in the market, competitor analysis
- Company Overview: year of establishment, history of the business, revenue, EBITDA, net income/SDE, notes on employees, clients, etc.
- Products and Services: this should not just be present products and services, but ones that will be rolled out in the future
- Customer Profile: important information here is what the customer mix looks like, including key demographics, and which portion of the customer base is most profitable
- Revenue Profile: what are the different ways the company makes money?
- Employee Profile: a full profile of any key employee might be included without disclosing too much information.
- Management Profile: this section is even more important than the employee profile, and an org chart could also be useful
- Financials: historical financials
While our advisors have the primary task of creating a CIM, it cannot be created without significant input from the seller.
Charts, graphs, and diagrams also make information easier to digest.
What a CIM Isn’t
A CIM is information to help empower the next step: engaging with the buyer to see if an LOI or Offer to Purchase makes sense. It is not:
- A legally binding contract
- A valuation or information about a valuation
- An instrument that carries enforceable obligations
- Does not promise future results
Would you like us to put together a CIM for your business? Reach out today.