Buying a business can be daunting, and it is crucial to consult the right people to make an informed decision. While the business owner will be a great source of information, they are also highly motivated to sell their business. So, they will not be impartial. Accordingly, you will need support from professionals who can help you during the business purchase process. This article will discuss some people you may want to consult when buying a business in New Zealand.
Business Owner
Talking to the business owner is critical. They are the closest to the business and its operations and will be able to provide context that you are unable to determine by simply reviewing the business and operations in a vacuum. You should consider asking the business owner about the following:
- Who are their key customers?
- Who are their key suppliers?
- Are the business premises leased or owned? If leased, what are the terms of that lease, including rent, term, and rights of renewal?
- Who are the employees?
- What are the key terms of their employment?
- Which employees are critical to the business?
- What are the current accrued entitlements for all employees?
As part of these initial inquiries, you should also ask for key documentation, including:
- key customer and supplier contracts;
- employee agreements;
- financial information;
- leases;
- licences required to operate the business; and
- details of all registered and unregistered intellectual property.
It is also a good idea to understand why the owner is selling the business. Often many business founders sell due to retirement or career changes, but if the owner cannot give you an explanation, then this could raise a red flag.
Accountant
You will want to consult the business’s accountant and also your accountant. When consulting the business’s accountant, you should review their financial records and tax information. As a result, you can identify the areas where the business may be losing money or highlight any red flags. If the business uses accounting software, you may ask to be logged in to ensure the company’s financial position.
When consulting your accountant, you can gauge how much you have to spend on the business and whether the investment will provide you with a good return. Your accountant may help you ask the right questions to the business’s accountant and can help you understand the specifics of their financial statements.
Continue reading this article below the formBusiness Broker
A business broker can be useful. Business brokers are experienced in business sales and can support you by introducing you to potential buyers/sellers as well as helping guide you through the sale and purchase process. Of course, brokers will charge a fee for their services, so it is good to ensure you are clear on these fees and how they are calculated before you proceed with their services.
Corporate lawyer
A lawyer is key to ensuring the agreed commercial arrangements are appropriately documented as well as determining that your interests as the buyer are adequately protected. They can assist you with:
- the legal, due diligence process;
- documenting the sale and purchase arrangements;
- negotiating appropriate vendor warranties in light of the results of your due diligence investigations; and
- the transition of the business.
In addition, they can help you understand which business structure may be right for you and the current protections of their intellectual property. If your lawyer identifies that the company’s intellectual property has no protection, this may raise issues.
Moreover, your lawyer can help you understand your lease obligations if the owner assigns their lease to you. Before buying a business, you may want to consider what costs arise from the lease and whether you have the means to pay for this.
Employees
You may wish to consult with key employees close to the business operations. Often this will not be possible until the purchase agreement is unconditional and the sale is public.
By listening and acting on employee feedback, you can establish a relationship of mutual respect. This will enhance the likeliness of employee retention and could possibly decrease labour turnover.
Customers
Before finalising the business purchase, you should take time to interview its customers if possible. This can help you understand if the business is meeting customer needs and if it is not, then why. Customers can tell you what they like and do not like and give suggestions for improvement. As a result, you may like to ask:
- what the business can do better;
- what the business’s reputation is like from their perspective;
- their opinion on the company’s pricing; and
- recommendations for improvements.
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Key Takeaways
When buying a business, it is vital to do your research and consult the right support. You should seek professional support to assist with your financial and legal due diligence investigations. This can help you in your negotiations with the vendor as well as identify risks and opportunities for improvement.
If you need help buying a business, you can contact our experienced business lawyers 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 0800 005 570 or visit our membership page.
Frequently Asked Questions
A business broker can help you navigate the business purchase process. They will help match you with the right seller and assist in initial sale structuring and negotiations.
You can consult the business’s employees if the owner allows it. Often you will not be able to engage with the employees until the purchase is unconditional.
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