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What to put in a memorandum of sale for the sale of a business or sale of a website?
"Memorandum" is defined in different ways and is often used to refer to a document agreed by two parties. However, for the purposes of this site, we are using the term to refer to the document prepared by the seller to present to the buyer key information about the site for sale.
Why do one?
For something worth $100 it may not be worth spending the time drawing up a detailed Memorandum of Sale (MoS). For all other properties it can have numerous benefits.
- Time saving
Despite the effort initially expended in drawing up the MoS it will save time overall. You could have 50 prospective buyers. Answering numerous questions from each one could prove pretty onerous.
- Opportunity to talk up your site
Writing a Memorandum of Sale offers an opportunity for you to "Sell" your site, talk up the good points, make a case for why the buyer should part with his money.
- Keeps buyers interested
Some buyers won't bother to tease information out from you bit by bit; they'll just leave. Having the salient features of the property all summarised and presented in a professional manner keeps more buyers interested for longer.
- Shows your commitment
Buyers see a Memorandum of Sale as a commitment. There's nothing worse than spending several days evaluating a prospective purchase only to be told that the seller has changed his mind about selling. It happens quite a lot. If you've taken the time to prepare a Memorandum of Sale you're likely serious about selling.
- Increases your selling price
It helps you achieve a higher price. A well presented Memorandum of Sale often has the site selling for close to the full asking price. Sites that are offered without an MoS typically sell for between 40 and 70% of the asking price.
Tip: Don't rely on your business broker to write your MoS for you. Have a look at businessesforsale.com. Pick a business broker, say "Turner Butler" and search for all the businesses they are selling on that site. Then read the brief one page memoranda on each. See? They all sound the same. Brokers generally use a boilerplate memoranda and stick your company name in there. And, for that, many of them charge a large upfront fee and a percentage of your selling price (Turner Butler, incidentally, only charge a percentage of SP). If you are relying on a third party to write your memorandum reserve the right to approve the copy before it goes public.
How long should it be? What do you put in it?
The length and detail you'd go into is generally based on the price you're hoping to achieve. Sites worth $1000/selling for $1000 are unlikely to be backed by a 300 page memorandum. On the other hand it's hardly likely that you'll achieve a $50,000 sale without taking the trouble to provide a fairly detailed MoS. Any buyer shelling out that kind of money is going to want to look quite carefully at the proposition and examine it for risks. If you've already got a business plan it's likely that a lot of what you need for the MoS is already covered there (how to write a business plan).
There is no hard and fast rule as to what you need to disclose in your memorandum. You need to provide the potential buyer with enough information for him to decide that either A) This site/business is not for him or B) It's an attractive investment. If the document is too long he'll lose interest, if it's too short he'll suspect there's something you're hiding. You could even provide it in htm form where you could keep it brief but with links to more detailed explanations. That's one way of compiling a 100 page memorandum without scaring buyers away.
Even if you've composed a War and Peace sized epitome don't be surprised if the buyer asks for more detailed information on a particular aspect of the operation or for a closer look at the stats/proof of earnings.
The below examples of Memoranda of Sale are meant to be neither perfect MoS examples nor a comprehensive guide to writing good MoS. Disclaimer: It has no legal standing and is provided here just to give you some idea of what an MoS covers.
Professional Memorandum Writing Services:
Writing memoranda is not our business but if you want us to draw up your memorandum it's a minimum cost of $5,000 and you're guaranteed 3 days worth of our dedicated attention. Other specialists charge a lot more. So, why don't you write one yourself? If you do want a comprehensive guide to writing a memorandum that's going to maximise your selling price you should try the Business Sale Center. They even have a free 16 page guide to selling a business which contains a lot of information not covered on this site.
If you're hoping to achieve between $50K and $5,000,000 it's all the more imperative that your MoS is spot on. Spending an additional $1,000 could net you a $50,000 higher selling price for your business. Their The Business Sale System: Insider Secrets to Selling Your Small Business is $87 and available for immediate download. Pay a bit more and you can have them custom write your MoS. While this site covers only the sale of websites that guide is a 216 page specialist book on selling a business. It covers issues like getting a competitor interested in a Merger/Acquisition, floating your business on the stock market and other innovative exit strategies. They are nice guys and - disclaimer - they pay us for sending them business.
DRAFT MEMORANDA OF SALE
2. Memorandum for the sale of a business (coming soon)
(copyrighted. You are allowed to use one copy for the sale of your own business. You do not have permission to reproduce this anywhere or use it for any other purpose)