What is Funds Flow Memorandum?
The Short Answer
Funds Flow Memorandum explained simply
A Funds Flow Memorandum (FFM) is a critical document in a business sale. It maps out every financial transaction that will happen at closing. Think of it as a detailed instruction manual for the money. It shows where the buyer's funds come from, how they are distributed to the seller, and how all other payments—like broker fees, legal fees, and outstanding debts—are handled. This document ensures everyone involved knows exactly what to expect financially on closing day.
Real-World Example
The Coffee Shop Sale
Imagine a coffee shop is selling for $500,000. The FFM would show:
- Buyer's Funds: $500,000 from the buyer's bank account.
- Seller's Payout: $450,000 to the seller after all deductions.
- Broker Fees: $25,000 to the business broker.
- Legal Fees: $10,000 split between buyer and seller attorneys.
- Outstanding Debt: $15,000 to pay off a small business loan.
This document makes sure all these payments happen correctly and in the right order.
Why this matters
The FFM is important because it brings clarity and prevents confusion on closing day. It ensures all financial obligations are met and that the seller receives the correct amount. Without it, closing can be messy and lead to delays or disputes.
Always review the FFM carefully with your attorney before closing. Make sure every number and every payment direction is accurate and matches your understanding of the deal.
Always review the FFM carefully with your attorney before closing. Make sure every number and every payment direction is accurate and matches your understanding of the deal.
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