Buyer Guide
The Information Memorandum is the single most important document you'll receive before making an offer on an Australian business. It's also the document most carefully designed to make you feel good about spending half a million dollars — or more — based on the seller's version of reality. The IM is marketing material dressed up as financial analysis. Once you understand that, everything in it looks different. This guide shows you exactly how to read one — section by section — and what to notice that the broker hopes you won't.
In this guide
An Information Memorandum — sometimes called an Info Memo or CIM (Confidential Information Memorandum) — is a document prepared by the business broker or the seller's accountant. You receive it after signing a Non-Disclosure Agreement. It presents the business, its financials, its operations, and its asking price in a structured format.
Here's what the IM is designed to do: sell the business to you. That's it. The broker chose which financials to include, which narrative to wrap around them, and which details to leave out. The seller reviewed it and approved the version that makes their business look best. Nobody involved in creating the IM was paid to represent your interests.
This doesn't make the IM useless. It makes it a starting point — a curated view that you need to stress-test, question, and verify. The buyers who get burned aren't the ones who read IMs. They're the ones who believe them without checking.
Most buyers open the IM at the front and read through like a novel. The broker knows this. That's why the first 10 pages are the narrative — the compelling story of a wonderful business with untapped potential. By the time you reach the financials at the back, you're already sold. You're looking for confirmation, not problems.
Read the IM backwards. Here's the order that keeps your judgment intact:
Financials first. Go straight to the profit & loss, the balance sheet, and the add-back schedule. Form your own view of the numbers before reading a single word of narrative. What does this business actually earn? Is revenue growing or shrinking? What's the trend over three years?
Add-backs second. The "adjusted" or "normalised" earnings table is where the real story lives. The gap between reported profit and the seller's adjusted figure tells you how much creative accounting is at play. More on this below.
Staff and operations third. How many people? What roles? What's the org chart (if there is one)? Where does the owner fit? This tells you what you're actually buying — a business, or someone's job.
Lease and assets fourth. How long is the lease? When does it expire? What plant, equipment, or vehicles are included? What's their actual condition versus the book value listed?
The narrative last. Now read the broker's story. You'll notice things you wouldn't have caught before. Claims that don't match the financials. Growth projections that ignore the revenue decline you already spotted. Gaps where you expected detail.
The financials in an IM are not the same as audited accounts. They're typically management accounts prepared by the seller's accountant, sometimes for the express purpose of making the sale look attractive. Here's what to look for.
Revenue trends matter more than revenue levels. A business doing $1.5M this year sounds impressive — until you see it did $1.8M two years ago. That's a 17% decline disguised as a healthy business. Always look at three years minimum. Five is better. The IM might only show the best years. If it shows two years of financials instead of three, ask why the third year was omitted.
Check whether the financial year has been cherry-picked. Some IMs present a "trailing twelve months" (TTM) figure that conveniently starts after a bad quarter. If the business operates on a standard financial year (ending 30 June in Australia), but the IM shows a TTM ending in March, ask what happened in the three months before that starting point.
Gross margins tell the real story. Revenue is what the business charges. Gross profit is what it keeps after paying for the product or service. If gross margins are shrinking year-on-year, the business is getting less profitable on every dollar of revenue — even if top-line revenue is growing. This is the trend that many IMs don't highlight, because it contradicts the growth narrative.
Watch the EBITDA to cash flow gap. EBITDA is the figure the asking price is based on. But EBITDA doesn't account for the capital expenditure needed to keep the business running, the working capital tied up in debtors and stock, or the tax the business owes. A business with $400K EBITDA might only generate $200K in actual cash available to the owner after necessary reinvestment. The IM rarely draws attention to this gap.
Add-backs are the adjustments the seller makes to reported profit to show what the business "really" earns under a new owner. Some are legitimate. Many are optimistic. A few are fiction.
At a 3x EBITDA multiple — which is common for Australian small businesses — every $20K add-back you accept without questioning adds $60K to the asking price. Accept three dodgy add-backs and you've just overpaid by $180K. This is the single most expensive mistake buyers make.
Owner's above-market salary. If the owner pays themselves $250K but the role could be filled for $120K, the $130K difference is a reasonable add-back. But verify what the replacement cost actually is — the broker's estimate of market salary is often too low.
One-off legal or consulting fees. A lawsuit that's been settled, a one-time fit-out, or a restructuring cost that won't recur. The key word is "genuinely one-off." Ask for proof it won't happen again.
Owner's personal expenses run through the business. The Mercedes, the club membership, the overseas "conference." These are real add-backs, but they also tell you the owner hasn't been running a tight ship — and the ATO might have views on whether these were properly disclosed.
Depreciation. Some IMs add back depreciation entirely, as if the equipment never needs replacing. It does. A plumbing business's vans don't last forever. A restaurant's kitchen equipment wears out. If depreciation is added back, you need to understand the real capex replacement cycle — what will you need to spend to keep the business running?
Family members on payroll. The owner's spouse earns $80K as "office manager." That's added back as a personal expense. But who's going to do that job after settlement? If you need to hire someone, that add-back evaporates. Our valuation multiples guide covers how to assess these properly.
"Non-recurring" expenses that recur. Legal fees show up three years running but each time they're classified as a one-off. Marketing spend that's "discretionary" but the business needs it to maintain revenue. Maintenance costs on old equipment that will need the same maintenance next year. If an expense has appeared in two or more of the last three years, it's not non-recurring.
Rent add-backs where the owner owns the property. The IM shows below-market rent because the owner also owns the premises. After the sale, the landlord (still the former owner) raises it to market rate. You've just lost $30K–$80K in annual profit that was baked into the valuation.
Revenue "normalisation." This is the most aggressive move — the IM adjusts revenue itself, not just costs. "The business lost a large client mid-year, so we've normalised revenue to reflect a full year." You're being asked to pay a multiple on income the business didn't earn.
Add-backs that exceed 40% of reported profit. If the seller's adjustments more than double the reported earnings, you're not looking at a profitable business with some personal expenses. You're looking at a marginal business dressed up as a good one.
The IM is as revealing for what it omits as for what it includes. Every missing section is a question the broker would rather you didn't ask.
If the IM doesn't include this, ask why
Business brokers have developed an entire vocabulary designed to make everything sound like an opportunity. Once you learn the translations, you can't unsee them.
"Well-established business" — The business has been around for a while. This tells you nothing about whether it's profitable, growing, or well-run. A 20-year-old business can be in decline. Length of operation is not a quality indicator.
"Significant growth potential" — The current owner hasn't been able to grow it. Or chose not to. Either way, you're being asked to pay today's price for tomorrow's potential. Growth potential is free — it's what you bring. Don't pay the seller for it.
"Loyal customer base" — Customers haven't left yet. But are they on contracts? Would they stay through an ownership change? "Loyal" with no evidence is meaningless. Ask for customer retention rates over three years.
"Owner willing to assist with transition" — Standard. Almost every seller offers this. What matters is the terms: how long, how many hours per week, whether it's included in the price or costs extra, and whether there are performance obligations during the transition.
"Motivated seller" — The owner wants out. This could be health, burnout, a divorce, a business downturn, or a better opportunity elsewhere. "Motivated" is sometimes code for "desperate." Find out why, because the reason affects your negotiating position and the risk profile of the deal.
"Scope for a new owner to grow" — Revenue is declining and the broker needs to explain why. This phrase almost always appears when the business has flatlined or contracted. The implication is that the current owner stopped trying. The reality might be that the market shifted.
"Semi-absentee ownership possible" — The owner currently works 60 hours a week but the broker believes (or hopes) a new owner could work less. Challenge this aggressively. Ask for the owner's actual weekly hours over the past 12 months. Then add 20%.
"Asking price reflects future earnings potential" — The current financials don't support the asking price. The seller wants you to pay a premium for growth that hasn't happened yet. You shouldn't.
If any part of an IM deserves forensic attention, it's the customer data — and it's the section most IMs handle worst.
Customer concentration is the silent deal-killer. If the business's top three customers represent more than 40% of revenue, you have concentration risk. If one customer represents more than 25%, you're not buying a business — you're buying a contract. And contracts end.
Check the contract basis. The IM might say "long-standing customer relationships." But are they on written contracts with defined terms? Or handshake arrangements that evaporate when the owner — the person those customers are loyal to — walks out the door? In Australian small businesses, the answer is usually handshakes. That's your risk to price in.
Look for customer churn data the IM doesn't provide. How many customers did the business lose last year? How many new ones did it gain? A business that retains 95% of customers annually is fundamentally different from one that replaces 30% of its base every year — even if the revenue number looks the same. The IM almost never volunteers this.
Recurring vs. project revenue. A business with $1.2M in recurring service contracts is worth significantly more than one with $1.2M in one-off project work. The IM may not distinguish between these. You should.
The lease can make or break a deal, especially for businesses that depend on their physical location — retail, hospitality, trade workshops, and any business where customers come to you.
Lease term remaining. If the lease has less than three years remaining at settlement, you have a problem. Banks won't lend against a business with a short lease. Landlords know a new owner is vulnerable and may use the renewal to extract higher rent. The IM might say "lease renewal expected" — that's not the same as a signed option.
Lease transferability. Not all leases automatically transfer to a new owner. Some require the landlord's consent, which can come with conditions — higher rent, a bank guarantee, a personal guarantee. The IM rarely mentions these details. Your lawyer needs to review the lease before you make an offer.
Market rent vs. current rent. If the owner has been in the premises for 15 years on a favourable lease, the current rent might be well below market. Check what comparable properties lease for. If rent jumps 30% at renewal, that comes straight out of your profit.
Asset condition vs. book value. The IM will list equipment at book value. A delivery van with $5K book value might need $15K in repairs or replacement within the first year. A commercial oven depreciated to zero might still be working — or might fail next month. During due diligence, inspect every significant asset physically. Book values are accounting fictions.
The IM gives you the seller's version. Here's how to check it.
Cross-check #1
Request the last 24 months of BAS (Business Activity Statements) lodged with the ATO.
BAS shows the revenue actually reported to the tax office. Compare this to the IM's revenue figures. If they don't match, someone has a credibility problem. This is the single most important verification step in any Australian business acquisition.
Cross-check #2
Ask for bank statements for the main operating account covering the same period as the financials.
Bank statements don't lie. You can verify cash receipts, actual payroll costs, rent payments, and loan repayments. If the IM says monthly revenue averages $100K but the bank statements show $75K, the IM is overstating.
Cross-check #3
Compare the IM's payroll numbers against the last two years of PAYG summaries or Single Touch Payroll data.
This confirms the actual wages paid. If the IM includes a family member add-back, the PAYG data will show exactly what that person was paid. It also reveals whether there are casual employees or contractors the IM didn't mention.
Cross-check #4
Run an ASIC search, PPSR search, and a company name search on the ABN.
This costs $2–$50 and takes an hour. It reveals whether the business has outstanding charges, secured interests registered against its assets, or historical director changes that might signal trouble. Our due diligence checklist covers every search you should run.
Cross-check #5
Google the business name, the owner's name, and the address. Check reviews on Google, ProductReview, and industry-specific platforms.
IMs never include negative reviews or customer complaints. Online sentiment gives you the unfiltered customer experience the IM was careful to curate. Pay attention to review trends over time, not just the average score.
Use this every time you receive an IM. It takes 90 minutes. It could save you $100K.
Read the financials first. Revenue, costs, EBITDA, and trends over three years. Ignore the narrative until you've formed your own view of the numbers.
Challenge every add-back. Write down each adjustment and ask: would I still accept this if I were paying my own accountant to review it? At 3x multiple, each $20K add-back costs you $60K.
Calculate the real multiple. Take the reported (not adjusted) EBITDA and divide it into the asking price. This is the multiple you're actually paying before the seller's creative adjustments. If it's above 5x for a small Australian business, the add-backs need to be bulletproof.
List what's missing. No customer concentration data? No lease details? No staff information? No capex history? Write down every gap. These become your first questions to the broker.
Decode the language. Circle every qualitative claim ("loyal customers," "growth potential," "strong reputation"). For each one, write down what evidence you'd need to believe it.
Assess owner dependency. If the owner's name appears on every page — in client relationships, in operations, in sales — that's a business built around a person, not a system. Factor that into your valuation and your transition plan.
Check the lease. Term remaining, transferability, renewal options, and current rent vs. market. If the IM doesn't cover this, it's the first thing you ask for.
Estimate your real cost of acquisition. Add the purchase price, plus working capital needs, plus any immediate capex, plus legal and accounting fees, plus stamp duty. The asking price is never the total cost. Use our stamp duty calculator and cash flow bridge calculator to model this.
Read the narrative last. Now that you have your own view, read the broker's story. Notice what doesn't match. Notice what's emphasised to distract from the weaknesses you've already found.
Write your question list. Before contacting the broker, prepare 10–15 specific questions that come from your review. Specific questions signal a serious buyer. Vague questions signal a tyre-kicker. The broker will respond accordingly.
The Information Memorandum is the seller's best case, presented by someone paid to sell. That's not dishonest — it's the nature of the document. Your job is to read it like a buyer, not like an audience.
Start at the back. Challenge the add-backs. Notice what's missing. Translate the language. Cross-reference everything. And remember: the asking price is a negotiation starting point, not a fact. The intelligence you gather from properly reading the IM is what gives you the leverage to negotiate from a position of strength.
The buyers who overpay aren't the ones who missed the IM. They're the ones who read it front to back and believed the story.
ThatDeal reads IMs so you don't have to guess what's real. We gather the intelligence, challenge the add-backs, and give you the facts — no spin, no fluff.
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