Putting your own CIM together

The short version

Buyers read two things first: a short anonymous description, then a [confidential information memorandum](/learn/reference#confidential-information-memorandum "The document that describes a business for sale to a buyer who has signed a non-disclosure agreement. The numbers, the history, the customers, the people and the reason for selling."), or CIM.
The CIM tells the story of the business and presents its numbers clearly.
Include the weaknesses yourself. A buyer who hears them from you trusts the rest.
Behind the CIM sits the data room: a secure online folder of the financial, legal, operations and sales documents a buyer reviews. Start building it before you go to market.
Some details wait until a buyer is further along. Customer and employee names are the most common.

The short description

This is one page or less. It names the industry, the general location, the size and what makes the business attractive. It does not name the business. It is what you send to draw interest before anyone signs a confidentiality agreement.

Brokers often call this a teaser or a blind profile.

The CIM

The confidential information memorandum, or CIM, is the main document a serious buyer reads after signing a confidentiality agreement. It is the same document whether a [broker](/learn/reference#business-broker "A person or firm paid, usually a percentage of the sale price at closing, to value a business, prepare the materials, find and screen buyers and manage the process. What a broker does and does not do is its own piece.") writes it or you do.

A complete CIM usually covers:

The business. What it does, who it serves and how it wins work.
History. How it started and how it grew.
People. Who does what, and how long they have been there.
Customers. The types of customers and how concentrated the revenue is, without names.
Operations. Locations, equipment, suppliers and key processes.
The numbers. Three to five years of revenue and earnings, presented clearly, with adjustments explained.
The weaknesses. What a new owner would need to watch or fix.
Why you are selling. In plain words.

The data room behind it

A data room is a secure online folder that holds the financial and business documents a buyer reviews during due diligence, the buyer's full check of the business before closing. The CIM tells the story. The data room proves it.

Buyers and their lenders will usually ask for three to five years of business tax returns and financial statements. Have every year ready before a buyer asks. Numbers in the CIM that do not tie to the tax returns will be found.

What goes in a data room

Every business is different, and every buyer asks for something unexpected. Most data rooms are organized into the folders below.

Financial

Financial statements for the last three to five years. If a CPA has reviewed them, include the reviewed versions. A review is a limited check by an outside CPA. Many small businesses have statements prepared by their own bookkeeper instead, and that is common.
Year-to-date financial statements, prepared on an accrual basis. Accrual basis records income when it is earned and expenses when they are owed, not when cash moves. Lenders and buyers read accrual numbers more easily.
Monthly profit and loss statements and balance sheets, so a buyer can see seasons and trends.
Cash flow statements.
Business tax returns for the last three to five years.
Bank statements for the last 12 months.
Accounts receivable and accounts payable aging reports: who owes you, who you owe and for how long.
A list of every debt: loans, lines of credit and equipment leases, with balances and payments.
Your add-backs, with support for each one. Add-backs are personal or one-time expenses run through the business that a new owner would not have. Lesson 5.3 covers them.
Payroll reports and payroll tax filings.
Sales tax filings, if your business collects sales tax.
An inventory list and how it is valued, if you carry inventory.
A fixed asset list: equipment, vehicles and tools, with what each is worth on your books.
Financial projections, if you have them. Label them as estimates. Buyers and lenders rely mainly on past results.

Legal

Company formation documents: articles of incorporation or organization, bylaws or operating agreement and a record of who owns what.
Customer contracts.
Vendor and supplier contracts.
Partner agreements.
Real estate leases. If you own the building, the deed and any appraisal.
Employment agreements, including any non-compete or non-solicitation agreements.
Independent contractor agreements.
Any past or current lawsuits, claims or disputes. If there are none, say so in writing.
Trademarks, patents and copyrights you own, and any documents assigning them to the company.
Business licenses, permits and certifications.
Any liens on business assets, such as a lender's claim on equipment.
Contracts that need the other party's consent before they can transfer to a new owner. Lesson 5.6 covers these.

Operations

Standard operating procedures: the written steps for how the work gets done.
An organization chart.
The employee handbook.
An employee list with roles, start dates and pay. Leave out names until a letter of intent is signed.
Employee benefit plans, such as health insurance and retirement plans.
Insurance policies, and the claims history on each. Insurers call the claims history a loss run.
An equipment list with maintenance records, and titles for any vehicles.
Key suppliers and the terms you buy on.
Software, systems and subscriptions the business depends on, and whether each can transfer.
The website domain and online accounts, and who owns them.

Sales and marketing

Revenue by customer, with each customer shown by a code rather than a name until later in the sale.
Customer segments: the main types of customers and what share of revenue each brings.
Customer retention: how long customers stay and how many return.
Your largest customers and what share of revenue each represents.
Backlog or signed work not yet completed, if your business has it.
Pricing and how it has changed.
Sales and marketing agreements, such as sales representatives or referral arrangements.
Where new customers come from.

Choosing where to keep it

A data room needs to be secure, organized and easy to control.

A shared online folder from a common file-sharing service works for many small business sales. It lets you share with specific people and remove access later.

Dedicated data room services add more control. They can allow viewing without downloading, add watermarks to every page and keep a record of who opened which document and when. Larger or more sensitive sales often use them.

Whichever you choose, give access only to named people, never a link anyone can open.

Building it well

Start before you go to market. Gathering documents while a buyer waits slows the sale and makes buyers nervous.
Number the folders and keep an index of what is in each one.
Name files clearly, with the year or date in the name.
Share in stages. Summary numbers come first. Detailed records, customer names and employee names come after a letter of intent is signed.
Keep a record of what you shared, with whom and when.
Keep it current. Add each month's financial statements as the sale goes on.

Lesson 5.2, Building your data room, covers how to gather each of these.

What to hold back

Some details can hurt you if they reach the wrong person. Customer names, employee names, pricing and supplier terms are the usual ones. Most owners share them only after a letter of intent is signed.

Step 6, Share with buyers what you've built, goes deeper on every part of this: what buyers read for, how to present the numbers and what to hold back until when.