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You've signed the NDA, received the document, and now you're staring at a 30-page business information memorandum. You know it matters. You're just not sure what to trust, what to probe, and what to walk away from.

This guide walks you through exactly that. Whether you're buying your first business or your fifth, reading an IM well is one of the most important skills in the acquisition process.

What Is a Business Information Memorandum?

A business information memorandum (IM) is a structured document prepared by the seller or their broker to present a business to prospective buyers. In Australia, it's the standard disclosure document used in SME business sales, typically released after a buyer has signed a confidentiality agreement.

The IM is not a neutral document. It is a marketing document. It presents the business in its best light. Your job is to read it with that in mind.

That doesn't mean the information is false. A well-prepared IM from a reputable broker will be accurate. But it will emphasise strengths, frame weaknesses carefully, and present financial data in a way that supports the asking price.

What a Typical IM Contains

While formats vary, most business IMs in Australia will include:

  • Business overview — what the business does, its history, and its legal structure
  • Products and services — what is sold, to whom, and at what margins
  • Financial summary — usually 2 to 3 years of profit and loss, sometimes with adjusted EBITDA
  • Operational overview — staff, systems, premises, key processes
  • Customer and supplier information — often anonymised at this stage
  • Growth opportunities — the seller's view of what a new owner could do
  • Reason for sale — retirement, health, relocation, or portfolio change
  • Asking price and deal structure — sometimes included, sometimes provided separately

Not all IMs are created equal. A thin, poorly structured IM can signal a business that hasn't been properly prepared for sale, or a broker who isn't doing their job.

How to Read an IM Critically

Start with the financials, not the story

It's tempting to read the executive summary first and get caught up in the narrative. Don't. Go straight to the financial statements.

Look at revenue trends across the periods provided. Is revenue growing, flat, or declining? Is gross margin consistent? Are there any unusual spikes or drops that aren't explained?

Then look at the bottom line. What is the net profit before tax? What is the adjusted EBITDA, and how was it calculated?

Interrogate the add-backs

Add-backs are adjustments made to reported profit to reflect what the business would earn under new ownership. Common add-backs include the owner's salary, personal vehicle expenses, and one-off costs.

Some add-backs are legitimate. Others are not. If the IM adds back a large owner's salary without accounting for the cost of replacing that person, the adjusted profit figure is overstated. Ask for a detailed list of every add-back and the supporting rationale for each one.

This is one of the most common areas where buyers overpay.

Assess customer and revenue concentration

A business where 60% of revenue comes from one customer is a fundamentally different risk profile to one with 200 customers across multiple industries. The IM may not make this obvious.

Look for any disclosure of customer concentration. If it's not mentioned at all, that's a question you need to ask directly. The same applies to supplier concentration — if the business depends on a single supplier for a key input, that's a material risk.

Check the operational picture

How many staff does the business have, and what are their roles? Is the owner deeply embedded in day-to-day operations, or does the business run with professional management?

Owner-dependent businesses are not necessarily bad acquisitions, but they require a different integration plan and often a longer transition period. The IM should give you enough information to form a view on this. If it doesn't, ask.

Also check the premises situation. Is the lease secure? When does it expire? A business with a strong trading history but a lease expiring in 12 months carries real risk.

Red Flags to Watch For

Some warning signs are obvious. Others are easy to miss on a first read.

  • Revenue growth that doesn't match profit growth. If revenue is rising but margins are compressing, something is wrong.
  • Unexplained one-off income. A spike in revenue from a non-recurring contract inflates the average and shouldn't be included in normalised earnings.
  • Vague reason for sale. "Pursuing other interests" is not a reason. If the IM doesn't explain the sale clearly, probe further.
  • Missing or incomplete financials. If only one year of accounts is provided, or if the numbers are management-prepared rather than accountant-prepared, treat that as a signal to request more.
  • Overly optimistic growth projections. Growth opportunities are fine to include, but if the asking price is based on projected future earnings rather than historical performance, be very cautious.
  • Staff turnover not addressed. High staff turnover is a cultural and operational risk. If the IM is silent on this, ask.

Questions to Ask After Reading the IM

Once you've read the document carefully, prepare a list of specific questions before your next conversation with the broker or seller. Good questions at this stage include:

  • Can you provide full financial statements (not just summaries) for the last three years?
  • What is the breakdown of revenue by customer, and what contracts are in place?
  • What is the owner's actual time commitment to the business each week?
  • Are there any pending legal matters, disputes, or regulatory issues?
  • What are the key terms of the current lease, and has the landlord indicated willingness to transfer it?
  • Are there any earn-out or vendor finance arrangements being considered?

The quality of the answers you receive at this stage tells you a great deal about how the sale process will be managed.

What Comes After the IM

The IM is the beginning of your evaluation, not the end. If the document holds up to scrutiny and your questions are answered satisfactorily, the next step is typically submitting a letter of intent or expression of interest, followed by formal due diligence.

Due diligence is where you verify everything the IM claims. This includes reviewing full financial records, legal agreements, staff contracts, supplier arrangements, and any intellectual property. It's detailed, time-consuming work, and it's where many buyers benefit from professional support.

At Everest Commercial Property & Business Brokers, we work with buyers through every stage of this process, from reviewing IMs and preparing targeted questions to financial modelling and full due diligence support. If you're evaluating a business in Australia and want a second set of experienced eyes on the numbers, we're here to help.

Browse current business listings or learn more about our buying support services at everestcpbb.com.au.

FAQs

What is a business information memorandum in Australia?
A business information memorandum (IM) is a document prepared by a seller or their broker to present a business for sale to prospective buyers. It typically includes financial summaries, operational details, customer information, and the asking price. It is usually released after the buyer signs a confidentiality agreement.

Is an information memorandum legally binding?
No. An IM is a marketing document, not a legally binding contract. Statements in an IM may carry legal weight if they are materially misleading, but the document itself does not create contractual obligations. Formal agreements come later in the process.

What is the difference between an IM and a prospectus?
A prospectus is a regulated document used for public capital raising and is governed by strict legal requirements under the Corporations Act. An IM used in a private business sale is not subject to the same regulatory framework, though the seller still has obligations around misleading conduct.

What should I do if the IM has incomplete financial information?
Request the missing information directly through the broker. If the seller is unwilling to provide complete financials at an appropriate stage of the process, that is a material red flag. You should not proceed to an offer without adequate financial disclosure.

How do I evaluate the asking price after reading the IM?
Compare the asking price to the adjusted EBITDA and apply relevant industry multiples. For most SME businesses in Australia, sale prices typically fall in the range of 2 to 4 times adjusted EBITDA, though this varies significantly by industry, growth profile, and risk factors. A broker or financial adviser can help you build a proper valuation model.

What is an add-back in a business IM?
An add-back is an adjustment to reported profit that removes costs considered non-recurring or personal to the current owner. Common examples include the owner's above-market salary, personal expenses run through the business, and one-time costs. Add-backs increase the adjusted profit figure and therefore the implied business value, so they require careful scrutiny.

When should I engage professional support to review an IM?
If you are seriously considering making an offer, professional support is worth engaging before you submit anything. A broker, accountant, or adviser with acquisition experience can identify issues in the IM that are easy to miss and help you structure your due diligence approach from the outset.