How to Review an Information Memorandum When Buying a Business in Australia

An information memorandum (IM) is a formal document prepared by a business seller or their broker that summarises a business for sale — covering its financial performance, operations, customer profile, staff structure, and the vendor's reasons for selling. In Australia, you typically receive an IM after signing a non-disclosure agreement. It's the document that moves the process from vague conversations about a business to something concrete on paper, and it marks the moment serious evaluation should begin.

The catch is that an IM is a marketing document. A good broker will have helped the vendor frame every number, every risk, and every growth opportunity in the most favourable way possible. That doesn't mean the IM is dishonest — most aren't — but it means you need to read it the way you'd read a real estate agent's listing copy: with appreciation for the craft and appropriate scepticism about the framing.

Here's how to approach it.

What Is an Information Memorandum in a Business Sale?

An information memorandum (also called a sales memorandum or business prospectus) is a structured document providing prospective buyers with enough information to form a preliminary view of whether they want to pursue the business further. In Australian business sales, it typically runs 15–40 pages and covers financials, operations, market position, customer profile, and proposed deal structure.

Rule of thumb: the length of an IM correlates loosely with the professionalism of the broker, not the quality of the business. A 10-page Word document with blurry photos tells you something about how the sale was managed. A 35-page document with professional formatting tells you the broker put effort in — but the numbers still need to be tested.

Most Australian IMs include two to three years of management accounts or tax returns as exhibits. These exhibits are more useful than anything in the body of the document. Start there.

The Standard Sections of an Australian Business Information Memorandum

Most IMs follow a similar structure:

Executive summary — headline revenue and EBITDA figures, why the business is for sale, key investment highlights
Business overview — what the business does, how long it's been operating, location and geography
Financial summary — revenue, gross margin, adjusted EBITDA, owner's salary
Customer and revenue profile — customer count, concentration, contract types, retention rate
Operations — how the business delivers its service, key staff, systems and software
Market and growth opportunities — the vendor's view of where the industry is heading
Staff and management — org chart, tenure, whether the owner is exiting or staying on
Proposed deal structure — asking price, multiple being applied, deal terms

Reading these sections in order is the wrong approach. Start at the back — the financials and the asking price — then work forward.

Reading the Financial Section: What to Actually Look For

The financial section is where most buyers make their first mistake. The numbers look precise, so they feel authoritative. They're not — they're a starting point for a negotiation.

The key number is "adjusted EBITDA" or "owner's earnings": the seller's version of what the business earns after adding back discretionary expenses (personal car, owner's mobile, owner's salary above what you'd pay a manager to do the same job). The adjustment can be legitimate or it can be creative. I've seen IMs where the vendor was adding back $180,000 in "owner's salary" on a business that genuinely needed a full-time manager on $90,000 — the real earnings were half what the IM implied (and no, it wasn't disclosed that way in the executive summary).

Rule of thumb: calculate the business value at the asking multiple both with and without the full adjustments. If the deal only works at the vendor's adjusted number, understand exactly which add-backs you're relying on before proceeding.

Also check revenue trends across three years. Flat to slightly growing is normal for a mature service business. A business that went up, then down, then up again needs an explanation — and "COVID affected us" doesn't cover years where other businesses in the same industry recovered cleanly. For a plumbing contractor in Brisbane or a landscaping company in Melbourne, you can usually benchmark against what the wider sector did.

For a detailed guide to this process, see how to normalise EBITDA when buying a business in Australia.

The Customer Profile Section: Where Concentration Risk Hides

After financials, the customer section is where most buyers spend too little time — and where sellers are most likely to present a rosier picture than reality warrants.

The question you're asking is: if the three biggest customers left the day after settlement, what's left?

A commercial cleaning business with 60 contracts spread across retail, hospitality, and medical clients in Sydney is a fundamentally different risk profile from a landscaping company where one strata management company accounts for 45% of revenue. Both might show identical EBITDA in the IM. Only one has the kind of concentration that should change how you price the deal or structure the earn-out provisions.

Rule of thumb: any single customer representing more than 15–20% of revenue needs to be specifically addressed in the deal structure — either through a price adjustment, earn-out, or warranty provisions tied to customer retention.

What the IM should include: number of active customers, tenure of the top relationships, whether there are written contracts or ongoing verbal arrangements, and an industry breakdown of the client base. What it often doesn't include: whether those customers know the business is changing hands, and whether their loyalty is to the business or to the owner personally.

The full picture on this is in customer concentration risk when buying a business in Australia.

Operations and Staff: What the IM Won't Tell You

The operations section is the most consistently soft part of any IM. It describes what the business does without showing you how well it actually does it.

The underlying question is: what happens if the owner doesn't show up next week?

The IM will describe the staff, mention the software systems, and frame the operations as organised and scalable. It will also say (almost without exception) that the business has "strong systems and processes in place." In practice, that sentence often means: the owner knows where everything is and the staff know who to call when they don't. That's not the same thing.

What the IM won't tell you is that the quoting is done by the owner in his head, the scheduling is a whiteboard in the back room, and the two most experienced technicians have been talking about their own venture. That's not invented — those are real patterns in Australian trades businesses at the $500K–$1.5M valuation range.

Rule of thumb: in service and trades businesses, assume owner dependency is meaningfully higher than the IM suggests until you've spoken to key staff and observed the operation yourself.

The IM is also where you first see the vendor's stated reason for selling. Common reasons: retirement, health, relocating interstate, wanting to pursue other interests. Most are genuine. "Wanting to pursue other opportunities" from someone aged 44 who looks perfectly healthy and whose industry is doing fine warrants a direct follow-up question — not because it's automatically suspicious, but because the answer will tell you something useful about the vendor's relationship with the business.

Red Flags to Watch For in an Information Memorandum

Some things in an IM should make you slow down regardless of how attractive the headline numbers look:

Revenue declining in the most recent year. The IM will often present a three-year average to smooth this. Look at year-on-year trends, not averages.

Significant add-backs without a schedule. An adjusted EBITDA of $320,000 with $140,000 in add-backs but no itemised list of what they are. Request the schedule before proceeding further.

Vague customer information. "The business serves a broad client base across the greater Sydney area" without any breakdown of customer count or concentration. Push for specifics.

Short remaining lease term. A business operating from commercial premises with 18 months left on the lease is either negotiating a new term (ask for evidence) or the tenancy is genuinely at risk.

Staff changes framed gently. "The business has experienced some team transitions over the past 12 months" means people left. Find out how many and why before you get attached to the numbers.

Growth opportunities section longer than the financial section. Sellers get creative about what could be; they're less forthcoming about what is. Disproportionate space for future potential is often a signal that the present picture needs work.

The financial red flags checklist for buying a small business has the full list.

Preliminary Information Requests Before Committing to Full Due Diligence

If the IM passes your initial read — the financials are coherent at the asking price, the customer profile is acceptable, and the operations story is plausible — the next step is requesting additional information before you commit time and money to full due diligence.

Standard preliminary requests after reviewing an IM:

Three years of lodged tax returns (not just management accounts — tax returns show what was declared, not just what was hoped)
BAS statements for the last 12 months (cross-checks the revenue figure)
A customer-by-customer revenue breakdown for the last financial year
The lease or occupancy agreement and its remaining term
A full staff list with tenure, role, and employment status (permanent, casual, contractor)
Details of any major customer or supplier contracts

This is the prelim check you run before you run the proper check. A broker told me recently about a deal where the buyer requested BAS statements and found the quarterly GST turnover implied an annual revenue 25% below what the IM had stated — not fraud, as it turned out, just IM numbers prepared from draft accounts that didn't reconcile to what was lodged. Took three weeks in due diligence to resolve, and the price adjusted. That's three weeks that could have been avoided with one preliminary request.

If the preliminary information matches the IM closely, you proceed to full due diligence. This is all covered in depth in Module 5 of the Playbook.

Want the full checklist? The Information Memorandum Review Checklist covers every section of a standard Australian IM with the specific questions to ask at each stage and the numbers to stress-test — free download.

FAQ: Information Memorandums When Buying a Business in Australia

What is an information memorandum for the sale of a business? An information memorandum is a formal document prepared by a vendor or their broker summarising the business's financials, operations, customers, and staff for prospective buyers. In Australia, it's typically provided after an NDA is signed and serves as the basis for initial buyer evaluation.

What documents should I review when buying a business? Start with the IM and the attached financials (tax returns, BAS statements). Then request a customer revenue breakdown, the lease, a full staff list, and any major contracts. A complete due diligence process typically involves an accountant and a commercial solicitor reviewing all records.

How do I check if the numbers in an information memorandum are accurate? Cross-reference the IM's revenue figures against BAS statements and lodged tax returns. Adjusted EBITDA needs a full add-back schedule — don't accept a summary line item. Bank statements and aged receivables reports provide further verification during formal due diligence.

What are red flags in an information memorandum? Revenue declining year-on-year, large add-backs without itemisation, vague customer information, short lease terms with no renewal evidence, and a growth opportunities section that's longer and more detailed than the financial section.

Do I need a lawyer to review an information memorandum? Not necessarily for the IM itself — that's a commercial read. But before you sign heads of agreement or enter exclusive due diligence, getting a commercial solicitor across the deal structure is worth the cost.

For next steps after the IM, see the full due diligence process for buying a small business in Australia, or the questions to ask when buying a small business for a structured approach to your first meeting with the vendor.

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