{"id":217485,"date":"2022-09-11T13:56:47","date_gmt":"2022-09-11T00:56:47","guid":{"rendered":"https:\/\/legalvision.co.nz\/?p=217485"},"modified":"2025-03-06T12:41:47","modified_gmt":"2025-03-05T23:41:47","slug":"buy-business-due-diligence","status":"publish","type":"post","link":"https:\/\/legalvision.co.nz\/business-sale-and-purchase\/buy-business-due-diligence\/","title":{"rendered":"I am Looking to Buy a Business in NZ. What is the Due Diligence Process?"},"content":{"rendered":"\n<p>Buying a business is a complicated process and should be done with care. Before closing the deal, you must <a href=\"https:\/\/legalvision.co.nz\/business-sale-and-purchase\/due-diligence-buying-business\/\">conduct due diligence<\/a> on the business. The purpose of undertaking due diligence is to better understand the target business\u2019 details, operations, finances, and much more. This will help identify any existing issues and enable you to negotiate the terms of the purchase with the benefit of a better understanding of the business. This article will outline the due diligence process when you buy a business.\u00a0<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Signing a Non-Disclosure Agreement (NDA)<\/h2>\n\n\n\n<p>The existing owner of the business may require you to <a href=\"https:\/\/legalvision.co.nz\/commercial-contracts\/when-to-use-a-non-disclosure-agreement-in-new-zealand\/\">sign an NDA<\/a> before they provide you with confidential information about their business. An NDA is a legally binding contract to protect against the leak of any confidential information. Without an NDA, sharing information freely to progress a business purchase may be challenging beyond initial high-level indications of interest. The NDA should include information such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>names of parties involved;<\/li><li>a definition of confidential information;<\/li><li>exclusions from confidentiality;<\/li><li>how long the NDA will last; and<\/li><li>who the recipient can disclose confidential information to.<\/li><\/ul>\n\n\n\n    <div class=\"my-7 lg:my-10 border-y-2 border-gray-100 py-7 lg:py-10 flex flex-col sm:flex-row items-start gap-10\">\n                    <img decoding=\"async\" class=\"w-52 mx-auto my-0! rounded\" src=\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/2\/2021\/12\/22115855\/cytonn-photography-GJao3ZTX9gU-unsplash-e1640129621597.jpg\" alt=\"Front page of publication\"\n                 loading=\"lazy\" width=\"208\" height=\"298\">\n                <section>\n            <div class=\"text-2xl font-bold\">Commercial Contracts Checklist<\/div>\n            <div class=\"body-text\">\n                <p>To protect your business, ensure supplier contracts meet your business\u2019 needs. Our free Commercial Contracts Checklist will help.<\/p>\n            <\/div>\n            \n\n<a href=\"https:\/\/go.legalvision.co.nz\/Commercial_Contracts_Guide_NZ.html\" class=\" block px-5 py-3.5 max-w-fit bg-orange button__hover transition rounded text-white font-bold text-lg no-underline uppercase leading-tight text-center\" target=\"\" rel=\"\">Download Now<\/a>        <\/section>\n    <\/div>\n\n\n\n\n<h2 class=\"wp-block-heading\">Financial Due Diligence<\/h2>\n\n\n\n<p>As part of your due diligence when you buy a business, you will want to conduct financial due diligence. You should ask the seller to provide all relevant financial information to you. This should include reports for the current financial year and previous years to ensure you have a full picture of trading to date. Doing this will help you identify potential areas of improvement and ensure that the financial forecasts you have been given are reasonable.\u00a0<\/p>\n\n\n\n<p>Furthermore, this financial information will enable you to understand the business trends such as debt and revenue in relation to seasonal demand. Your accountant will be able to assist you with your financial due diligence.&nbsp;<\/p>\n\n\n\n<p>You may request to see:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>income statements;<\/li><li>cash flows and balance sheets;<\/li><li>credit reports;<\/li><li>tax returns;<\/li><li>debt and liability reports;<\/li><li>gross profit margins;<\/li><li>fixed and variable expenses; and&nbsp;<\/li><li>inventory of all products and equipment, including their total value.<\/li><\/ul>\n\n\n\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n    <div class=\"mb-8 text-2xl font-bold text-orange\">\n        Need legal advice?\n        <br>\n        <span class=\"text-lg not-prose\">\n                           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You should consider asking for the following information:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>certificate of incorporation and company constitution;<\/li><li>shareholders agreement (if applicable);<\/li><li>corporate structure diagram;&nbsp;<\/li><li>copies of all key contracts (for example, top 10 supplier and customer contracts);<\/li><li>employee information (list of employees, copies of template contracts, copies of key employee contracts, and details of all accrued entitlements); and<\/li><li>list of key assets including, for example, trade marks.<\/li><\/ul>\n\n\n\n<p>Reviewing this information will help you better understand how the business operates and key revenue streams and liabilities. It will also help inform your negotiations with the seller in terms of deal structure, terms, and price.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Key Business Contracts<\/h2>\n\n\n\n<p>The business is likely to have various contracts in place that are key to its running. You need to look over these contracts to understand the existing relationships and obligations you must fulfil once you own the business. Contracts may include:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>partnership or joint venture agreements;<\/li><li>non-disclosure agreements;<\/li><li>loan agreements;<\/li><li>equipment leases;<\/li><li>property leases;<\/li><li><a href=\"https:\/\/legalvision.co.nz\/employment\/importance-of-employment-agreements\/\">employment contracts<\/a>; and<\/li><li>distribution agreements.<\/li><\/ul>\n\n\n\n<p>Contracts associated with the business are likely to be assigned to you as part of the business sale. You will need to ensure you understand their key terms and that you are prepared to take responsibility for the obligations under those contracts that will apply to you after the completion of the sale.\u00a0<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Employees<\/h2>\n\n\n\n<p>The key to a business\u2019 success often lies with its employees. During your due diligence, it is vital to understand the business\u2019 organisational chart and who the key employees are.\u00a0<\/p>\n\n\n\n<p>You should consider asking the seller whether they anticipate any key employees leaving the business as a result of the sale or soon after the sale has finished. This enables you to form strategies in advance to seek to retain any employees that may be critical to the business. You should also ask to view:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>employee agreements;<\/li><li>independent contractor agreements;<\/li><li>payrolls;<\/li><li>employee tax forms;<\/li><li>human resources policies; and<\/li><li>employee benefits and superannuation plans.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Further Information Requests<\/h2>\n\n\n\n<p>As a result of your initial due diligence investigations, you are likely to want further information or ask specific questions of the seller. You can either engage with the seller directly to request further information or conduct a more formal process called \u201crequest for information\u201d or \u201cRFI.\u201d With this process, you can ask questions and request related documents to the ones you have already been given. <\/p>\n\n\n\n<div  class=\"box box--icon box--info\">\n    <p>Usually, an RFI is conducted through a spreadsheet or online system. This will help you and the seller see what questions have been asked and answered.<\/p>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\">Key Takeaways<\/h2>\n\n\n\n<p>Before buying a business, you should conduct due diligence. Before starting your due diligence process, the current business owner will likely ask you to sign an NDA. You should conduct a thorough legal, financial, and tax due diligence process &#8211; your lawyer and accountant can help guide you through this process.\u00a0<\/p>\n\n\n\n<p>If you need help with your due diligence when you buy a business, you can contact our <a href=\"https:\/\/legalvision.co.nz\/business-sale-purchase-lawyers-lp\">experienced business lawyers<\/a> to assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today at&nbsp; <a href=\"tel:+64800005570\" class=\"AVANSERnumber dynamic-number\">0800 005 570<\/a> or visit our <a href=\"https:\/\/legalvision.co.nz\/membership\/\">membership page<\/a>.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Frequently Asked Questions<\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1662857374659\"><strong class=\"schema-faq-question\">What is a non-disclosure agreement?<\/strong> <p class=\"schema-faq-answer\">A non-disclosure agreement (NDA) is a contract you and the seller should sign before conducting due diligence. This will ensure that confidential information is not leaked and that you know exactly to whom you can disclose information.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1662857391476\"><strong class=\"schema-faq-question\">What should I do if I uncover an issue with the business?<\/strong> <p class=\"schema-faq-answer\">If you encounter a problem during your due diligence, you can talk to the existing business owner about it and ask questions. You can also request relevant documents to help you better understand the situation. This information will also help inform your negotiations with the seller on the terms of the sale.<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"90c4126e1b\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/217485\" \/>            <input value=\"https:\/\/legalvision.co.nz\/business-sale-and-purchase\/buy-business-due-diligence\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"I am Looking to Buy a Business in NZ. What is the Due Diligence Process?\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Buying a business is a complicated process and should be done with care. Before closing the deal, you must conduct due diligence on the business. The purpose of undertaking due diligence is to better understand the target business\u2019 details, operations, finances, and much more. This will help identify any existing issues and enable you to<a href=\"https:\/\/legalvision.co.nz\/business-sale-and-purchase\/buy-business-due-diligence\/\">Continue reading <span class=\"sr-only\">&#8220;I am Looking to Buy a Business in NZ. What is the Due Diligence Process?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13348,"featured_media":215495,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"1378,202951,1155,216015,206761,202961","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[13],"tags":[25,35,54,1562],"class_list":["post-217485","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-sale-and-purchase","tag-small-business","tag-due-diligence","tag-medium-business","tag-buy-a-business"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>What is Due Diligence When I Buy a Business? | LegalVision NZ<\/title>\n<meta name=\"description\" content=\"If you wish to buy a business in New Zealand, the due diligence process is essential. 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She joined LegalVision at the beginning of 2022, following four years of commercial legal experience in a top-tier law firm, followed by an in-house, legal counsel role in telecommunications. With her mix of private practice and in-house experience, Nina can provide LegalVision\u2019s startup, SME, and enterprise clients with high-quality, pragmatic advice on a range of general corporate and commercial matters. When she\u2019s not working, you can find Nina out and about, exploring Queenstown and surrounding areas with her family.","sameAs":["https:\/\/www.linkedin.com\/in\/nina-vanderlaan-57151077\/"],"url":"https:\/\/legalvision.co.nz\/author\/ninavanderlaan\/"},{"@type":"Question","@id":"https:\/\/legalvision.co.nz\/business-sale-and-purchase\/buy-business-due-diligence\/#faq-question-1662857374659","name":"What is a non-disclosure agreement?","acceptedAnswer":{"@type":"Answer","text":"A non-disclosure agreement (NDA) is a contract you and the seller should sign before conducting due diligence. This will ensure that confidential information is not leaked and that you know exactly to whom you can disclose information.","inLanguage":"en-NZ"},"inLanguage":"en-NZ"},{"@type":"Question","@id":"https:\/\/legalvision.co.nz\/business-sale-and-purchase\/buy-business-due-diligence\/#faq-question-1662857391476","name":"What should I do if I uncover an issue with the business?","acceptedAnswer":{"@type":"Answer","text":"If you encounter a problem during your due diligence, you can talk to the existing business owner about it and ask questions. You can also request relevant documents to help you better understand the situation. This information will also help inform your negotiations with the seller on the terms of the sale.","inLanguage":"en-NZ"},"inLanguage":"en-NZ"}]}},"_links":{"self":[{"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/posts\/217485","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/users\/13348"}],"replies":[{"embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/comments?post=217485"}],"version-history":[{"count":6,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/posts\/217485\/revisions"}],"predecessor-version":[{"id":228782,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/posts\/217485\/revisions\/228782"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/media\/215495"}],"wp:attachment":[{"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/media?parent=217485"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/categories?post=217485"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/tags?post=217485"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}