An information memorandum is a package of marketing documents used to attract prospective buyers and investors. However, using an information memorandum will identify all relevant details of your business rather than simply acting as a pitching mechanism. In this way, it will denote the transparency of your business and provide investors with a comprehensive way of assessing the operation and profitability of your company. Below you will find the purpose of using an information memorandum and typically what it should include.
Purpose
The primary purpose of an information memorandum is to motivate potential investors to funnel capital into your business. This form of investment strategy typically occurs after initial and early-stage rounds of investment. This is because at an early-stage your company will not have the required information that an information memorandum typically contains. Moreover, even though this package is designed to attract investors, by providing comprehensive and concise information, your information memorandum also conveys transparency and integrity in your business.
An information memorandum is also an effective means of internal communication, keeping key decision makers in the loop. More importantly, it is imperative to remain truthful with realistic goals and projections. You must also correctly calibrate your cash flow and investment needs to avoid any fraudulent conduct. There is no need to embellish your information memorandum as credibility is more important to investors.
Information memorandums ought to be exhaustive, specifically relating to:
- Assets and liabilities;
- Financial standing;
- Business orientation;
- Market stance and promotional strategies;
- Client relationships.
Contents
To accurately compile your information memorandum, it would be beneficial to assume the role of a prospective buyer. You need to ask yourself what information would you need if you were investing or buying a company. Comprehensively detailing your information will also minimise any risks an investor may allege.
You should consult a business lawyer to tailor an information memorandum for your specific needs but here are typical points you should include in your information memorandum:
Company:
An important feature you should include is your company overview. This will convey the purpose of your business, your visions and goals and the strategies you will employ to achieve this. Also, it would be beneficial to investor to demonstrate how their funding will be used.
Business:
You should describe the products or services you sell. In doing so you should identify the features of your products and services to show how they are better than other products in the market. In this section you should also look to your market influence.
Legal:
You need to identify and describe any intellectual property you hold. This includes describing anything that is legally patented, trademarked or otherwise protected by law. In this section, it would also be helpful to mention any intellectual property arrangements you have with third parties.
Operation:
Here you should discuss your suppliers, procurement, production and distribution. Also provide up to date logistics accompanied by your systems and processes, quality control, target marketing and sales. You should also provide some insight into your management team and describe their role in your business.
Financials:
In this section you will need to accurately provide you balance sheet and cash flow statement. Also, provide documents of your sales, gross profits, current trading and pre-tax revenue. It is important to provide a general up to date overview for investors.
Industry:
It is advisable to assess your position in the industry as well as compare yourself with your competitors. In doing so you should discuss strategic plans and offer objective analysis as to your industry stance.
Customers:
Finally, you should provide information on your key consumers. This will also involve market analysis as well as customer purchase trends and projections.
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