The Finance Memo: Structure, Length and What Goes First

A memo proposes an action and carries a decision somebody has to take. A research note answers a question and stops. So a memo adds two things a note never has: the action proposed, and what happens if it is not taken. Order it as answer, action, support, uncertainty, alternatives considered, and what would change it.

One difference produces every rule below. A note is read by somebody who wants to understand something. A memo is read by somebody who has to decide something, usually today, usually with four other things waiting behind it. Every structural rule for a memo comes from that one difference, and a memo that reads like a very good note is a memo that quietly handed the deciding back.

One assignment supplies every worked figure below. The Kavery research desk, inside Kavery Capital Services Private Limited, was asked a question about Meenakshi Tubes Private Limited, a position the desk already carries. Sharada Iyer produced the work, Prakash Nadar reviewed it, and Latha Menon had to decide what followed. The analysis is finished before the writing starts: the source log is closed, the assumption register has nine rows in it, and the review pass is done. The writing is all that is left.

The memo asks for a decision inside one firm, written by one desk to a committee that has to answer it. A bond, a warehouse or a single machine in place of the credit line would change the facts and not one sentence of the shape.

What is a memo for, and how is it different from a research note?

A research noteA short document answering a question, with no action proposed in it. answers a question. A note carries the question at the top, the evidence in the middle and the answer at the bottom, and the reader closes it knowing something they did not know an hour ago. Understanding is the entire job, and a good note does it in eleven hundred words.

A memoA short document proposing an action to somebody who has to decide. does something else. A memo proposes an action and puts a decision in front of the reader that the reader now has to take. The test is one sentence long: if nobody can accept the document, reject it or send it back, it is not a memo, whatever the header says. A note can be filed. A memo has to be answered.

Both of these get written at home without being called either. The message that says the fridge has been making a noise for three weeks is a note. The message that says the fridge has been making a noise for three weeks, the repair quote is Rs 4,000/-, a replacement is Rs 28,000/-, and the repair is being booked on Saturday unless somebody objects, is a memo. The second one cannot be left on the table. The message carries an action, a date and a stated default. Once it lands, doing nothing has become a visible choice rather than the drift that happens while everybody is busy.

Two parts do all of that work, and a note has neither of them. The first is the action proposed: what is to be done, to what, and by when, written as something a person could carry out without ringing the writer to ask what was meant. The second is the do-nothing case: what happens if nobody does anything at all. Everything else, the evidence, the reasoning, the caveats and the sources, a note carries just as well as a memo does.

What goes in a memo, and in what order?

Six parts. The contents were settled before the writing started, so the order is what is left to get right. Answer, action, support, uncertainty, alternatives considered, and what would change it. Here is the invented memo laid out against that list, with the word count each part actually took.

Parts four and six sound alike and are not. Part four says how much is not known today. Part six says what would make the writer write again. In the memo, part four states how far the figure can move and on what it depends; part six names the ninety day review and the one filing event that would reopen the file before then.

Putting the answer at the top, with everything beneath it existing only to hold the answer up, is Barbara Minto's pyramid principle, set out in her book The Pyramid Principle in 1978. Her argument was about how a reader takes an argument in. A writer arrives at one by a completely different route. The order the work happened in is a record of the writer's afternoon; the order the memo runs in is a service to the reader's.

Part one, the answer and the action, in the first sixty words

Sixty words is not a style preference. Sixty words is roughly what a reader takes in before deciding whether to keep reading, and a decider with four other items on the list makes that call fast. So the finding and the request both go inside it. Twenty five words carried the finding in the invented memo and thirty five carried the action, and nothing else was allowed above them.

The single most common structural fault in a finance memo is a warm-up paragraph explaining the subject of the memo. The header already did that. A sentence beginning this memo reviews or the purpose of this note is has spent the most valuable space in the document telling the reader something they knew before opening it.

Why is the do-nothing case a required part rather than a courtesy?

Because doing nothing is the option that wins when nobody prices it. Every meeting has a default outcome, and the default is that the thing already happening keeps happening. A proposal competes against that default whether or not anybody says so out loud, and a proposal that never names its opponent is arguing against something invisible.

The do-nothing caseA written statement of what happens if the proposed action is simply not taken. in the memo runs to about two lines. The full Rs 40,00,000 stays out against a position whose margin sits below the desk's own internal floor of 11 per cent, and the next scheduled look at it is a year away. The two lines did not argue. Each stated a consequence with a number and a date attached. Once the consequence is written down, choosing to do nothing is a choice somebody made rather than a thing that happened.

The household version is exactly the same shape. Leaving the noisy fridge alone is free right up until the week it stops, and the message that says nothing about that has made the free-looking option look free. Write the sentence and the same option is still available, still perfectly choosable, and now visible.

Do the rejected alternatives weaken the proposal?

They strengthen it, and the reason is about the reader rather than about the writer. A proposal with no visible alternatives reads as the only thing the writer thought of. A proposal with two rejected alternatives beside it reads as the best of three. Same proposal, same evidence, and a completely different standing in the room.

There is a practical reason as well. The first question in any meeting is some version of what else was looked at, and a memo that answers it in two lines has bought back four minutes it would otherwise have spent improvising. Writing the alternatives down converts the strongest question the room can ask into a paragraph whose wording the writer controlled.

The table is a shape rather than a judgement. Whether those were good reasons is a question about a business rather than about the form of the document. The table shows the form: one line naming the option, one line naming its effect, one line naming why it was not the proposal. Three lines each, sixty words for the section, and the room can now argue about the right thing.

How long should a memo be, and what decides that?

The size of the decision, never the size of the analysis. Effort feels like it should show, and so this rule is the one people find hardest. Nine hours went into the invented assignment, twenty one documents sit in the working file, fourteen items are in the source log and nine assumptions are in the register. None of that earns a single word.

Ask instead how big the thing being decided is. One line, one amount moving from Rs 40,00,000 to Rs 25,00,000, one effective date, one review date. One line moving is a small decision with a short answer, and fourteen hundred words was already generous for it. A decision that changes how a whole desk works would carry a longer memo on far less analysis.

Length that tracks effort turns a memo into a record of the work, and a record of the work already exists. The working file is that record, and the working file is where the twenty one documents, the fourteen log items and the nine register rows belong. A memo that reproduces them has duplicated a file nobody asked for and buried the request inside it.

How to Communicate Uncertainty in a Finance Memo: Which Three Devices Do the Work?

Three devices, and they answer three different questions. A range says how far the answer can move. A named conditionThe specific thing that has to hold for the stated answer to stand. says what the answer depends on. A falsifierThe specific thing that would show the stated answer is wrong. says what would show the answer is wrong. Reaching for the wrong one produces a document that sounds careful and tells the reader nothing.

All three are in the invented memo and each is one sentence. The range: the margin stands at 10.8 per cent, and the tested case with the December order removed computes at 5.0 per cent. The named condition: that 10.8 per cent holds while the December order of Rs 2,96,80,000 repeats, and that order is 14 per cent of revenue of Rs 21,20,00,000. The falsifier: a revised filing for the year just reported would mean the memo was built on numbers that have since moved.

Why is a hedge that costs the writer nothing worse than no hedge at all?

Compare two sentences. The position may deteriorate. And: the margin falls to 5.0 per cent if the December order of Rs 2,96,80,000 does not repeat. The first is a hedgeA qualifier that reduces the claim without telling the reader anything new.. The hedge is unfalsifiable, it commits the writer to nothing, and it will be true whatever happens next. The second carries a number, a condition and something the reader can go and check.

A hedge that costs the writer nothing has bought protection for the writer with space that belonged to the reader. A costless hedge is worse than saying nothing because it occupies the position where a real statement of uncertainty should have been, and it looks from a distance like one. The working test is to ask what the reader can now do that they could not do before reading the sentence. If the honest answer is nothing, delete it and put a range, a condition or a falsifier in its place.

What did the memo in this assignment actually look like?

The note went out at 1,100 words. The memo, built from the same closed source log and the same nine row assumption register, went out at 1,400. The difference is 300 words, and not one of those words is analysis. The same work is holding both documents up, so the support section is the same length in both.

The 300 words split three ways. About 90 went on the action: the thirty five word sentence plus the lines saying who carries it and from when. About 110 went on the do-nothing case. About 100 went on the two alternatives considered, at roughly three lines each. Every extra word in a memo is decision apparatus, and if it is not, what has been written is a longer note with a memo header on it.

What Is an Investment Memo, and What Does It Add?

An investment memoA memo proposing that money be committed, with the terms and the exit set out. is the ordinary memo with three fields added, and it is a special case rather than a different species. An investment memo shows up when the action being proposed is the commitment of money: to a position, to a project, to a machine, to anything that takes cash out now against something later. The six parts stay exactly as they are. Three fields join them.

The amount. One number, stated as a number, not a range and not a ceiling somebody will fill in later. The terms. On what basis the money goes out: over what period, ranking where, subject to what conditions, and who is allowed to change them. The exit. How it comes back, and what happens if it does not.

The exit is the field most often left off, and its absence is exactly what makes a document not an investment memo. A reader looking at an amount and a set of terms with no exit is being asked to commit with no stated way back. No reader can take a decision like that from the document in front of them. The reader would have to construct that decision alone, and preventing exactly that is why the memo exists.

Research Note vs Investment Memo: Where Exactly Do They Part?

Set the three documents side by side and the ladder is short. A research note answers a question and asks for nothing. A memo answers a question and asks for one thing. An investment memo answers a question, asks for one thing, and that thing is money, so it names the amount, the terms and the exit. Each step adds; none of them subtracts.

The note and the memo are where the interesting boundary sits, and the table below runs one against the other. Four rows are identical in both documents and two rows exist in only one of them, and those two rows are the entire difference. Everything people say about memos being punchier or more urgent is downstream of those two rows rather than separate from them.

What happens when a memo describes instead of proposing?

How Finance Memos Support Professional Decisions: What Does a Reader Do With One?

Watch a credit committee read one and the order is never front to back. The meeting has to answer the action, so the action is the first stop. The second stop is the do-nothing case. The action is only ever judged against that default. Only then does anybody open the support, and usually only the part of it that touches whichever number somebody wants to argue about. A memo is only ever read out of order. Build it in the order a decider reads it and it survives exactly that.

An analyst uses the memo in the opposite direction, as an instrument on themselves. A thirty five word action sentence cannot be written while the writer is still undecided. The sentence will not form. A lot of analysis discovers at exactly that moment that it never reached a position at all, and finding that out at the writing desk is enormously cheaper than finding it out in the room.

A reviewer, Prakash Nadar in the invented case, uses the alternatives section as the fastest test available. Two rejected options with one line of reasoning each tells a reviewer that a choice was made. No alternatives tells a reviewer nothing. The reviewer then has to establish by conversation whether the writer chose or simply arrived, and that conversation is exactly what the section exists to avoid.

And the memo becomes the record. After the decision on 12 March, the decision record points back at this document as the basis, and anybody reopening the file in six months reads the memo to find out not just what was decided but what the alternatives were and what everybody knew at the time. A household does the identical thing at kitchen-table scale: the message that named the repair, the replacement cost, the date and the do-nothing option is the thing the household goes back to next winter when the same noise starts, and it says what was known then rather than what anybody now wishes had been known.

The Kavery research desk, Kavery Capital Services Private Limited, Meenakshi Tubes Private Limited, Sharada Iyer, Prakash Nadar and Latha Menon are invented.
Educational material. Not advice on any investment, tax, budget or market position.