What Is a Confidential Information Memorandum?
If you’re in the process of acquiring a business, one of the first substantial documents you’ll encounter is the Confidential Information Memorandum — commonly called a CIM. This document is essentially the seller’s pitch book: a comprehensive overview of the business designed to give prospective buyers enough information to decide whether to move forward with a deeper evaluation.
Think of it as the business equivalent of a home inspection report combined with a sales brochure. It contains facts, figures, and narrative — but it’s prepared by the seller’s side, which means you need to read it with a critical eye.
At GoSBA Loans, we review CIMs regularly as part of our work helping buyers secure SBA financing. With $320M+ funded in 2025 across hundreds of acquisitions, we’ve learned exactly what to look for — and what to watch out for — in these documents.
Who Prepares the CIM?
The CIM is typically prepared by:
- The business broker or M&A advisor representing the seller — this is the most common scenario for small and mid-market deals
- The seller themselves — occasionally for smaller deals without broker representation
- An investment bank — for larger transactions in the lower middle market and above
Because the CIM is prepared by the sell side, it’s inherently a marketing document. That doesn’t mean it’s dishonest — reputable brokers stake their reputation on accuracy — but it does mean the information is presented in the most favorable light possible. Your job as a buyer is to understand what’s being highlighted, what’s being minimized, and what’s missing entirely.
Key Sections of a CIM
While every CIM is different, most follow a similar structure. Here’s what to expect and what to focus on in each section:
Executive Summary
This is the opening pitch — a 1-2 page overview covering:
- Business description and history
- Industry overview
- Key financial highlights
- Asking price and deal structure
- Reason for selling
What to look for: The reason for selling deserves careful attention. “Retirement” is straightforward. “Pursuing other opportunities” or “personal reasons” warrants follow-up questions. If the reason for selling is vague, dig deeper.
Business Overview and History
This section covers how the business was founded, its evolution over time, major milestones, and current operations.
- Look for: How long the business has been operating, ownership changes, and any periods of significant growth or decline
- Watch for: Gaps in the timeline or glossed-over periods that might indicate challenges
Products and Services
A detailed description of what the business sells, its value proposition, and competitive positioning.
- Look for: Revenue diversification across products/services, recurring revenue streams, and proprietary offerings
- Watch for: Heavy dependence on a single product or service that could become obsolete
Financial Performance
This is typically the most important section. Expect to see:
- 3-5 years of historical financial statements (income statements, sometimes balance sheets)
- Seller’s Discretionary Earnings (SDE) or EBITDA calculations with add-backs
- Revenue trends and gross margin analysis
- Working capital requirements
Critical things to scrutinize:
- Add-backs: These are expenses the seller claims are discretionary or one-time. Common legitimate add-backs include owner’s salary above market rate, personal expenses run through the business, one-time legal costs, and non-recurring expenses. Be skeptical of aggressive add-backs — they inflate the apparent profitability.
- Revenue trajectory: Is revenue growing, flat, or declining? A business with declining revenue will be priced differently than one that’s growing, but the CIM may downplay a downturn.
- Margin trends: Are margins improving or compressing? Rising costs that squeeze margins can be a serious concern.
- Cash vs. accrual accounting: Understand which method is being used, as it affects how revenue and expenses are recognized.
Customer and Market Analysis
This section describes the target market, customer base, competitive landscape, and growth opportunities.
- Look for: Customer concentration — what percentage of revenue comes from the top 5 customers?
- Look for: Customer retention rates and average customer lifetime value
- Watch for: If the top customer represents more than 15-20% of revenue, that’s a significant risk factor that SBA lenders will scrutinize
Operations
How the business actually runs day to day:
- Key processes and workflows
- Technology and systems
- Facilities and equipment
- Supply chain and vendor relationships
- Employees — roles, tenure, compensation
Look for: How dependent the business is on the current owner. If the owner is involved in every sales call, manages all key relationships, and makes every operational decision, the transition risk is high.
Growth Opportunities
Every CIM includes a section on growth potential — new markets, products, channels, or operational improvements the next owner could pursue.
Read this section with healthy skepticism. If the growth opportunities are so obvious and easy, why hasn’t the current owner pursued them? Sometimes the answer is legitimate (retirement, lack of capital, no interest in growth). Other times, the opportunities are more theoretical than practical.
How to Read Between the Lines
The CIM tells you what the seller wants you to know. Your job is to figure out what they’re not telling you. Here’s how:
What Sellers Emphasize
- Their best financial years — if the CIM leads with 2022 numbers but it’s 2025, ask why
- Revenue over profit — high revenue is impressive but meaningless without healthy margins
- Growth potential over current performance — future opportunity is speculative; current cash flow is real
- Length of business history — “established 30 years ago” sounds great, but if revenue has been declining for the last 5, longevity isn’t an asset
What Sellers Minimize or Hide
- Customer concentration risk
- Pending litigation or regulatory issues
- Deferred maintenance on equipment or facilities
- Key employee flight risk
- Declining margins masked by revenue growth
- Personal guarantees or liabilities that transfer
- Competition that’s gaining market share
Red Flags in CIMs
Over hundreds of deal reviews, we’ve identified the most common red flags that should trigger deeper investigation:
- Inconsistent financials: Numbers that don’t reconcile between the P&L, tax returns, and CIM narrative
- Excessive add-backs: If add-backs represent more than 30-40% of the claimed SDE, scrutinize every single one
- Missing years: If the CIM shows 2021, 2023, and 2024 financials but skips 2022, what happened in 2022?
- Vague reason for selling: “Personal reasons” or “pursuing other interests” — always get specifics
- No mention of competition: Every business has competitors. If the CIM doesn’t discuss them, the seller is either naive or hiding something.
- Over-reliance on growth story: If the CIM spends more pages on future potential than current performance, the current performance probably isn’t great
- High owner involvement: If the owner works 60+ hours per week and is involved in every aspect, you’re buying a job, not a business — unless you can hire into those roles
- Employee turnover not discussed: High turnover is expensive and disruptive. If the CIM doesn’t mention employee retention, ask about it.
- Round numbers everywhere: If every financial figure is a round number, the data may be estimated rather than actual
How CIM Data Feeds Into Your SBA Loan Application
The CIM is your starting point, but SBA lenders need verified information. Here’s how the CIM connects to the lending process:
What Lenders Verify from the CIM
- Tax returns: Lenders require 3 years of business tax returns to verify the financials presented in the CIM. If the CIM numbers don’t match the tax returns, that’s a problem.
- SDE/EBITDA calculations: Lenders will recast the financials themselves, often disallowing add-backs that the broker included
- Revenue trends: Lenders want to see stable or growing revenue. Declining revenue makes loan approval much harder.
- Debt service coverage: The business’s cash flow must cover the loan payment with adequate margin (typically 1.15x-1.25x coverage ratio)
What GoSBA Does with CIM Data
When you share a CIM with GoSBA, our team:
- Performs a preliminary financial analysis — recasting SDE/EBITDA using lender-accepted methodology
- Identifies potential lender concerns — issues like customer concentration, owner dependency, or industry risk that specific lenders may flag
- Matches the deal to appropriate lenders — from our 50+ SBA lender network, we identify which lenders are most likely to approve this specific deal
- Prepares your business plan and projections — using CIM data as a foundation, we create the comprehensive business plan and financial projections required for SBA approval — a $2,500-$5,000 value, completely free
- Flags information gaps — we tell you exactly what additional documentation to request from the seller before submitting the loan application
Questions to Ask After Reviewing a CIM
Every CIM should generate a list of follow-up questions. Here are the essential ones:
- Can I see 3 years of complete tax returns (not just the CIM financial summaries)?
- What is the customer concentration? What percentage of revenue comes from the top 5 clients?
- How many hours per week does the owner work, and what specific functions do they perform?
- What is the employee turnover rate over the past 3 years?
- Are there any pending or threatened legal actions?
- What capital expenditures are needed in the next 2-3 years?
- Why is the business being sold now specifically?
- What has the trend in gross margins been, and what’s driving any changes?
- Are there any contracts, leases, or agreements that don’t transfer to a new owner?
- What would happen to the business if the owner left tomorrow?
Make Better Decisions with Expert Support
Reading a CIM is part art, part science. The numbers tell one story, but context tells another. Having an experienced team review the CIM alongside you can mean the difference between a great acquisition and a costly mistake.
GoSBA reviews CIMs and preliminary financials as part of our 100% free service to acquisition buyers. We’ll tell you honestly whether a deal looks financeable, what concerns a lender will raise, and how to structure the deal for the best chance of SBA loan approval.
- 50+ lender network — we know what different lenders look for
- $320M+ funded in 2025 — real experience across hundreds of industries
- Free business plan and financial projections — worth $2,500-$5,000, included at no cost
- Zero cost to you — we’re paid by the lender, not the buyer
