The Memorandum of Sale
The Memorandum of Sale
At Crown Business Brokers, LLC, we usually prepare a memorandum of sale for sellers of a New Jersey business. This is a document that is provided to a prospective buyer after we receive a non-disclosure agreement, but it is issued before the initial meeting. So, what should the memorandum of sale include? Obviously, what it should contain is various information by type of business, but let’s assume that we are attempting to sell a childcare center.
First, all memoranda of sale should include a statement that the document is the property of the brokerage firm. It should also reference that the business can only be shown by the broker, that the nondisclosure agreement is incorporated into the memorandum of sale by reference, and that the memorandum of sale can only be copied with the express permission of the broker.
Second, a general description of the business should be provided. In the case of a childcare center, this would include the number of employees, number of children enrolled, age breakdown of enrolled children, and the fact that the center has no air quality issues.
Third, the demographics of the area is important when trying to sell a childcare center; i.e., how many children under the age of six living in the immediate vicinity, what is the median family income, and what is the educational level of the surrounding population.
Fourth, the facilities should be described. The number of square feet is necessary, as well as the terms of the lease. A statement that the business is located in an area that is safe, clean and well-lit should be included, assuming that this is true.
Fourth, a financial analysis should be undertaken that describes overall profitability and trends. If there are significant variances on a year to year basis, this should be described and explained. At Crown Business Brokers, we do not include complete tax returns in the memorandum of sale.
Fifth, any seller advertising materials should be included as well as other documents, such as the parents’ handbook.
Obviously, what the memorandum of sale should and will include will vary by type of business. It should, however, do a good job of answering a prospective buyer’s fundamental questions so as to why he or she would want to meet with the seller.
For more information, please call 908-931-9300.