How to Read an Information Memorandum (IM)

The Information Memorandum (IM) is the document a business broker prepares when listing a business for sale. It's your primary source of data for evaluating a deal — but it is written to sell the business, not to provide a neutral assessment of it.

Reading an IM well means extracting the numbers you need while staying alert to what is being emphasised, what is downplayed, and what is missing entirely.

What a typical IM contains

Most IMs follow a similar structure:

1. Executive Summary — Headline metrics, asking price, reason for sale
2. Business Overview — What the business does, its products/services, operating model
3. Financial Summary — Revenue, earnings, and sometimes a 3-year P&L
4. Customer & Revenue Mix — Customer concentration, recurring vs one-off revenue
5. Team & Operations — Staff headcount, roles, key person dependencies
6. Market & Competition — Industry context, competitive positioning
7. Assets — Equipment, IP, lease details
8. Asking Price Rationale — How the broker justifies the multiple

Step 1: Extract the key numbers

The most important numbers for your evaluation:

| Number | Where to find it | What to do with it | |--------|-----------------|-------------------| | Asking price | Executive summary | Calculate the multiple | | Revenue (current year) | Financial summary | Calculate the margin | | EBITDA or SDE | Financial summary | Calculate multiple + DSCR | | Revenue Year 1 (prior year) | Financial summary or P&L | Calculate 1-year growth | | Revenue Year 2 (2 years prior) | P&L | Calculate 3-year CAGR | | Employee count | Team section | Flag if below 5 (high owner dependency risk) |

Enter these directly into BAS Tool to get an instant score and deal flags before spending more time on the IM.

Step 2: Verify the earnings figure

The earnings figure in an IM is almost always an "adjusted" or "normalised" EBITDA or SDE. Adjustments are legitimate — but you need to understand each one.

Common add-backs in an IM:

• Owner salary — Legitimate for SDE. Verify it's not understated.
• Non-recurring items — Legitimate one-offs (e.g., fit-out costs). Ask for evidence.
• Related-party transactions — Rent paid to an entity the owner controls. Is the rent below market? If so, the normalisation is valid. If above market, it's an inflated add-back.
• "Adjusted for personal expenses" — Common in small businesses. Scrutinise carefully.

Red flag: Multiple add-backs without supporting documentation. Request the actual tax returns and management accounts.

Step 3: Read the customer section critically

Customer concentration is one of the most underrated risks in SMB acquisitions. Ask:

• What is the largest customer's share of revenue? A single customer at 30%+ of revenue is a concentration risk. If they leave post-acquisition, your DSCR could collapse.
• Are there long-term contracts? Or is revenue relationship-based and potentially transferable only with the current owner?
• Is revenue recurring or project-based? Recurring revenue (subscriptions, retainers, maintenance contracts) is worth a premium over lumpy project revenue.

Step 4: Assess the team section for owner dependency

The team section often reveals owner dependency risk between the lines. Warning signs:

• "The founder is involved in all major client relationships" — red flag
• "The business relies on the owner's 25 years of industry relationships" — red flag
• "The founder will assist with a 3-month handover" — inadequate for a complex business
• No mention of management structure, SOPs, or documented processes — red flag

Conversely, positive signals:

• "The business has a full management team in place"
• "Day-to-day operations are managed by the operations manager"
• "The owner works 2 days per week in the business"

Step 5: Check the assets section

What physical and intangible assets are included in the sale?

• Equipment age and condition — Old equipment means near-term capex. Request maintenance records.
• Lease — How long is the remaining term? Is there an option to renew? An expiring lease is a significant risk for location-dependent businesses.
• IP — Are customer lists, systems, and software owned by the company (not the owner personally)?
• Vehicles and plant — Are they owned outright, or financed? Financed assets come with liabilities.

Step 6: Look for what's missing

The most important due diligence skill is noticing absence:

• No 3-year P&L? Ask for it. If they won't provide it, ask why.
• No customer concentration data? Ask for the top 10 customers by revenue.
• No explanation for a revenue spike or dip? Ask for the story.
• No mention of key staff retention? Ask who would leave if the owner left tomorrow.
• No lease terms? Request the lease document before making an offer.

IMs are marketing documents. The broker's job is to present the business favourably. Your job is to find the version of this business that is less favourable than the IM suggests — and price for that.

Using BAS Tool with an IM

If you have the PDF, BAS Tool's AI extraction (Pro feature) reads the IM and auto-populates the evaluation form with the key financial data. It highlights fields it couldn't extract in amber so you know exactly where the gaps are.

Free users can enter the numbers manually from the IM directly into the free BAS calculator.

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Have an IM in front of you? Run the numbers through the free BAS calculator to get an instant score and deal flags.