In the M&A world, documentation is critical.  Not only does a Seller need the proper documentation to obtain a valuation on the business and to get the Buyer interested in the transaction, but the proper documentation is required during the due diligence process to verify the accuracy of the Seller's financial statements and the goodwill of the business.
  
At FBB, we typically break the process down into multiple components, as assembling all the information simultaneously can be time consuming for time-challenged business owners.  The first group of information is used to provide a range of value for the business.  Set forth below is the initial request for information from one of our checklists.  This list will often be modified for requests for additional information relating to intellectual property, franchise information, etc. 
 
INFORMATION REQUIRED FOR BUSINESS VALUATION
  • Year End Financial Statements, including Tax Returns (up to five years, if available) and your most recent Monthly Financial Statement (Note: If we take your business to market, we will need monthly financial statements for the most recent three years.)
  • Equipment List with fair market value estimates are requested (Note: Model and Serial Numbers on each item having a value in excess of $500 may be required at a later date.)
  • Copy of Premises Lease, or copy of most recent Real Estate Appraisal, if applicable
  • Summary of Existing Financial Agreements (e.g., lines of credit, equipment leases, etc.)
Assuming that the client decides to go to market, more detailed information is required to put together the Business Presentation Package, which may also be called the Confidential Information Memorandum (CIM) or simply the "Book."  Below is a short list of information requested to put together the Book.  Similar to the above, requests for additional information are often necessary to appropriately document the description of the business. 
 
INFORMATION REQUIRED FOR BUSINESS PRESENTATION PACKAGE
  • Brief History of Business, including dates of key events (e.g., founding date, present ownership succession, new product lines added, etc.)
  • Product Information (e.g., sales breakdown by major product line, if available)
  • Marketing Information (i.e., who you sell to, how you market your products/services)
  • Samples of Promotional Literature
  • Employee Data (e.g., total number of employees, list of key employees, wages, benefits, job descriptions, hire date, etc.) Please provide organizational chart, if available.
  • List of Key/Prominent Customers (Note: Omit if list is deemed too confidential.)
  • List of Primary Competitors (Note: Please describe your competitive advantages, if any.)
  • Facility/Product Photographs (Note: We will take photos unless confidentiality is a problem.)
  • Diagram/Layout Drawing of Premises
  • Other Information (Please provide us with any materials that you feel will help us and/or prospective buyers gain a better understanding of your company and how it does business.)
Unfortunately, the quest for documentation does not stop here, as even more detailed information, such as outstanding contracts, insurance information, etc., is required for due diligence, but we will defer that discussion for a subsequent eNewsletter topic.
 
(originally published in the September 2013 eNewsletter)