{"id":608,"date":"2020-12-03T09:31:37","date_gmt":"2020-12-02T23:31:37","guid":{"rendered":"http:\/\/nz.legalvision.com.au\/?p=608"},"modified":"2023-03-09T17:29:57","modified_gmt":"2023-03-09T04:29:57","slug":"due-diligence-business-sale","status":"publish","type":"post","link":"https:\/\/legalvision.co.nz\/business-sale-and-purchase\/due-diligence-business-sale\/","title":{"rendered":"Due Diligence in a Business Sale in NZ"},"content":{"rendered":"\n<p><span style=\"font-weight: 400\">Purchasing a business can be a lengthy process<\/span>.<span style=\"font-weight: 400\"> <\/span>A<span style=\"font-weight: 400\">s part of that process, the buyer will want to understand the specifics of what they buy<\/span>. They will want to review information and documentation about the business to verify the assets included in the sale<span style=\"font-weight: 400\"> and if it is worth the seller&#8217;s asking price. This investigative process is called &#8216;due diligence&#8217;. This investigation will consist of reviewing the<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">financial records;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">business records; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">commercial aspects of the business.<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">As the seller and the business owner<\/span>, you may wonder<span style=\"font-weight: 400\"> where to start. This article will guide you on how to prepare for due diligence and what the process looks like once it is underway.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Preparing for Due Diligence<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">The nature and value of the sale and the timeline for the purchase will impact the amount of due diligence a buyer would like to do on your business.\u00a0<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">For example, your business is valuable,<\/span> and you are offering it for sale for a high purchase price. In that case, you should expect the buyer to<span style=\"font-weight: 400\"> want to review all material records for your business<\/span>.<span style=\"font-weight: 400\"> This helps them assess whether they are getting a quality business. Generally, a buyer will at least want to look at the:<\/span><\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">financial statements;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">sales reports;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">premises itself;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">leases;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">contracts with key suppliers and customers;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">plant and equipment;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">equipment hire contracts;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">employment contracts and contractor&#8217;s agreements; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">details of intellectual property ownership (e.g. trademark documentation).<\/span><\/li>\n<\/ol>\n\n\n\n<p>Often<span style=\"font-weight: 400\"> the material a buyer will want to investigate is sensitive commercial information<\/span>. Therefore, <span style=\"font-weight: 400\">you should ask the buyer to enter a non-disclosure agreement (NDA) with you before handing over your business information. The confidentiality protections included in an NDA will restrict what the buyer can do with your information. <\/span><\/p>\n\n\n\n<p>An NDA should also include clauses that:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>set out what the buyer is required to do if the sale does not proceed (i.e. return or destroy the information); and&nbsp;<\/li>\n\n\n\n<li>what happens if they breach their confidentiality obligations.<\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">If you are at the early stage of the sale, it is worth getting together all of the material information about the business early on. This preparation will ensure you are ready to hand over the information to the buyer when the time comes.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">The Due Diligence Process<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">Once you have <\/span>both <span style=\"font-weight: 400\">signed t<\/span>he<span style=\"font-weight: 400\"> NDA, you can provid<\/span>e <span style=\"font-weight: 400\">copies of your business information <\/span>to the buyer <span style=\"font-weight: 400\">for t<\/span>heir<span style=\"font-weight: 400\"> review. If you have an agent, lawyer or accountant assisting you with the sale, they can also provide information to the buyer on your behalf. You and the buyer may even prefer to use an online cloud-based document-sharing<\/span> system<span style=\"font-weight: 400\"> called a &#8216;data room&#8217;<\/span>. This allows <span style=\"font-weight: 400\">you to store your documents and provide access to the buyer and the buyer&#8217;s lawyer and accountant.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">The buyer will most likely provide you with a list of the documents that they would like to review. That&#8217;s when you will start uploading the material to the data room. They may also request access to your physical premises (if you have one) so that they can:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">inspect the office;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">consider the location; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">take a look at pieces of equipment or machinery.<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">Once the buyer has started looking at your business information, they may also send you lists of questions about that information.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">The buyer may choose to do this where they have follow-up questions about some issues or request related documents to the ones you have already provided. This process is called a &#8216;request for information&#8217; or &#8216;RFI&#8217;, and the buyer will usually expect you to submit a list of responses to their RFIs. The RFI process is generally done via a spreadsheet or online system. T<\/span>his allows<span style=\"font-weight: 400\"> you and the buyer to see the questions and answers you have both submitted easily.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">The due diligence process can take anywhere from a few<\/span> weeks to a few months. The timeline depends on the following<span style=\"font-weight: 400\">:\u00a0<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">the complexity of your business;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">the amount of information the buyer requests to review; and&nbsp;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">your timing for the sale generally.<\/span><\/li>\n<\/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                            Call <a href=\"tel:+64800005570\" 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Sometimes, however, this process can happen after the sale agreement is signed. Generally, once you and the buyer have agreed on the commercial terms of the sale and the buyer has notified you that they are satisfied with their due diligence, you will be responsible for having the sale agreement prepared.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">You and the buyer will then negotiate the legal terms of the sale agreement. Once you have agreed on the final sale agreement, you will both proceed with signing the contract. There will then be a period between signing and the day the buyer formally takes over ownership of your business. This period gives you and the buyer enough time to prepare for the handover.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Key Takeaways<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">The due diligence process is one of the fundamental parts of a business sale, and you should not underestimate it. As a seller, it is essential to prepare for this process to put your business in the best position possible to achieve the highest asking price you can. If a buyer can see that your internal record keeping is precise and up-to-date, they will be able to see that your business is valuable and worth pursuing. If you have any questions about the due diligence process as part of a business sale, contact <a href=\"https:\/\/legalvision.co.nz\/business-sale-purchase-lawyers-lp\" target=\"_blank\" rel=\"noreferrer noopener\">LegalVision\u2019s sale of business lawyers<\/a> on <a href=\"tel:+64800005570\" class=\"AVANSERnumber dynamic-number\">0800 005 570<\/a> or fill out the form on this page.<\/span><\/p>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1606880228344\"><strong class=\"schema-faq-question\"><strong><strong>What is due diligence?<\/strong><\/strong><\/strong> <p class=\"schema-faq-answer\">Purchasing a business can be a lengthy process; as part of that process, the buyer will want to understand the specifics of what they are buying. This will involve an investigation process called due diligence.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1606880258379\"><strong class=\"schema-faq-question\"><strong><strong><strong>How can I prepare for due diligence?<\/strong><\/strong><\/strong><\/strong> <p class=\"schema-faq-answer\">As a business owner, you should be prepared for due diligence by preparing all the documents the potential buyer requests in a timely manner.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1606880271477\"><strong class=\"schema-faq-question\"><strong><strong>What happens after the due diligence process?<\/strong><\/strong><\/strong> <p class=\"schema-faq-answer\">If the potential buyer is satisfied with what they find during the due diligence process, you can then negotiate the legal terms of the sale agreement with them. Once you have agreed on the final sale agreement, you will both proceed with signing the contract.<\/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=\"ed19fd34f0\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/608\" \/>            <input value=\"https:\/\/legalvision.co.nz\/business-sale-and-purchase\/due-diligence-business-sale\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"Due Diligence in a Business Sale in NZ\" 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>Purchasing a business can be a lengthy process. As part of that process, the buyer will want to understand the specifics of what they buy. They will want to review information and documentation about the business to verify the assets included in the sale and if it is worth the seller&#8217;s asking price. This investigative<a href=\"https:\/\/legalvision.co.nz\/business-sale-and-purchase\/due-diligence-business-sale\/\">Continue reading <span class=\"sr-only\">&#8220;Due Diligence in a Business Sale in NZ&#8221;<\/span><\/a><\/p>\n","protected":false},"author":6835,"featured_media":144,"comment_status":"open","ping_status":"open","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":"206340,1171,202186,206337,203335,216548","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[13],"tags":[25,35,36],"class_list":["post-608","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-sale-and-purchase","tag-small-business","tag-due-diligence","tag-sale"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - 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