What's in an Information Memorandum, and why you sign an NDA first

You’ve spotted a business that looks the goods. You ring the broker, all keen, and the first thing they say is “no worries, just sign this NDA and I’ll send you the IM.”

Fair question: why all the cloak and dagger? And what’s actually in this IM thing once you get it? Let’s have a look. General information only, as always.

Why the NDA comes first

An NDA (non-disclosure agreement, also called a confidentiality agreement) is a promise to keep what you’re about to read to yourself.

Here’s why vendors care so much. Picture this: the owner of a busy café decides to sell. Word gets out. By Friday:

• The best barista has started looking for another job
• The landlord’s wondering whether to push the rent at the next review
• The café across the road is telling customers “they’re closing down, you know”
• Suppliers are getting twitchy about credit terms

None of that is true yet, but the damage is real. A leaked sale can knock the value off a business before it’s even sold. So vendors share the sensitive stuff only with buyers who’ve agreed in writing to keep it quiet.

That’s also why our public listings don’t name some businesses, and why some never appear in public at all. They live on our Off-Market page as teasers, and the details only come out once you’ve signed.

What the NDA usually says

Every one’s a bit different, but most cover:

• What’s confidential. Usually everything you’re given about the business, plus the fact that it’s for sale.
• What you can do with it. Use it only to assess buying the business.
• Who you can share it with. Normally your professional advisers and potential lenders, who also have to keep it confidential.
• No approaching staff, customers or suppliers without the vendor’s permission.
• Returning or destroying the information if you don’t proceed.

Notice what’s not in there: any obligation to buy. Signing an NDA is a promise to be discreet, not a promise to put an offer in. Still, read it before you sign, and get legal advice if anything worries you.

What’s in an Information Memorandum

The IM is the business’s sales brochure, CV and annual report rolled into one. A decent one will usually cover:

The business

• What it does, who it does it for, and how long it’s been doing it
• Why the owner is selling (always worth asking about directly, too)
• Trading hours and how the place runs day to day

The people

• Staff numbers, roles and how long they’ve been there
• What the owner does, and how many hours they work
• Who would stay on after a sale, if known

The premises

• Location, size and fit-out
• Lease details: term, options, rent and outgoings
• Or, if it’s business plus freehold, the property details

The customers and market

• Customer mix, and whether any one customer is a big chunk of sales
• Competitors and what makes this one different
• Growth opportunities (every IM has these; some are real)

The assets

• Plant and equipment list
• Vehicles
• How stock is handled in the sale

The numbers

• Usually two or three years of profit and loss
• The owner’s adjusted earnings, with add-backs listed
• Sometimes a summary of BAS figures

The sale

• Asking price and what’s included
• Whether stock is on top
• Any conditions, like franchisor or landlord approval

How to read an IM like an old hand

Here’s the thing: the IM is the vendor’s story. It’s prepared to sell the business. It’s not lying, usually, but it’s putting its best foot forward, like a dating profile.

So read it with a pen in your hand:

• Check the add-backs. Are they explained? Is there evidence? See how to value a small business.
• Look at the trend, not just the best year.
• Find the owner’s hours. If they’re working 70 hours, you’ll either do the same or pay someone.
• Look for what’s missing. No lease details? No staff info? Ask why.
• Write down every question. Then ask them, in writing.

Then verify it. Before you go unconditional, get the tax returns, BAS statements, bank statements and the lease itself, and have a qualified professional go through them with you. The IM gets you interested. The records get you comfortable.

Questions the IM won’t answer (so ask them)

Even a great IM leaves gaps. A few I always like asked:

• Why are you really selling? Retirement, health and family are common and fine. “Just ready for a change” sometimes needs a second question.
• What would you do with the business if you were staying? Owners usually know exactly what they’d fix. That’s your first-year plan, handed to you.
• What keeps you up at night? A competitor, a big customer, a lease review. Better to hear it now.
• Will you stay on to hand over? A few weeks of training from the owner is worth its weight in gold.

What a good IM tells you about the vendor

A clear, honest, well-organised IM usually means a vendor who’s organised and serious about selling. A thin, vague one might mean the opposite, or just a vendor who needs a bit of help. If you’re selling, have a read of preparing your business for sale, because a good IM starts with good records.

Have a look

See our current public listings, the Off-Market teasers, or how the War Room works for serious buyers. There’s an IM coming soon for NightOwl Fairfield Waters in Townsville.

Found one you like? Give me a call. I’ll get the NDA over to you and you can have a proper look.

Frequently asked questions

What is an Information Memorandum in a business sale?

An Information Memorandum, or IM, is a detailed document prepared for a business sale. It usually covers the business's history, operations, staff, premises and lease, customers, assets and financial performance, and the terms of the sale.

Why do I have to sign an NDA to see a business for sale?

Because the IM contains confidential information: the business's name, its numbers, staff and sometimes customers. If that got out, staff, suppliers, customers or competitors could react before the sale is done, and the value of the business could drop. The NDA protects the vendor.

Does signing an NDA mean I have to buy the business?

No. A confidentiality agreement commits you to keeping the information private and using it only to assess the purchase. It doesn't oblige you to make an offer or buy. Read it before you sign, and get legal advice if you're unsure.

Can I share the IM with my advisers?

Usually yes. Most NDAs allow you to share the information with your professional advisers and lenders for the purpose of assessing the purchase, as long as they keep it confidential too. Check the wording of the agreement.

General information only. This isn't financial, credit, tax or legal advice and doesn't take your circumstances into account. Get advice from a licensed professional before you act.