Due Diligence When Buying a Business in NZ: A Practical Checklist

What due diligence is for

Due diligence tests whether the business matches the information supplied by the seller and whether you understand the obligations you would take on. It should confirm the financial, legal and operational position before the agreement becomes unconditional.

The scope depends on the business. A cafe requires food registration and a workable lease. A cleaning business may depend on contracts, staff and vehicles. An online business may rely on advertising accounts, platform access and intellectual property. Build the review around the way the business actually earns money.

Financial checks

Review several years of accounts where available, plus recent management figures. Compare revenue, gross margin, wages, rent, marketing and net profit over time. Ask an accountant to test owner adjustments and reconcile important figures to tax or banking records where appropriate.

Identify the working capital required after settlement. Check debtors, creditors, stock, deposits, prepaid income and seasonality. A profitable business can still experience cash pressure if customers pay slowly or large bills fall due soon after takeover.

• Annual financial statements
• Management accounts
• GST and payroll records
• Bank and point of sale information
• Debtors and creditors
• Stock and working capital

Legal and contractual checks

Review the sale and purchase agreement, premises lease, finance arrangements, supplier terms, customer contracts, warranties and any litigation or complaints. Confirm which contracts transfer automatically, require consent or need to be replaced.

Check ownership of the trading name, domain, website, telephone numbers, software accounts and other intellectual property. If the seller is subject to a restraint of trade, make sure its scope is appropriate and legally reviewed.

Staff and employment checks

Ask for a current staff list, employment agreements, remuneration, leave balances and details of contractors. Understand which employees may transfer and what the sale agreement says about offers of employment and liabilities.

New Zealand employment rules apply when a business is sold or transferred. Some employees in specified sectors have additional protections. Cleaning businesses require particular care, so both parties should obtain employment advice before decisions or communications are made.

Operational and market checks

Inspect equipment and maintenance records. Verify licences, registrations and insurance. Review customer concentration, supplier dependence, online reviews, competitors and the seller's role in daily operations. Speak with the landlord or other parties only with the seller's approval and through the agreed process.

Record unresolved items and decide whether they change the price, require a condition or make the transaction unsuitable. Due diligence should lead to a clear decision rather than a folder of documents no one has assessed.

Get the right advice

Use a lawyer and accountant who understand business purchases. Depending on the opportunity, you may also need advice on employment, property, food safety, intellectual property, technology or environmental obligations.

The Business Board advertises businesses and forwards enquiries. It does not verify every claim or advise buyers on a purchase. Buyers must make their own enquiries and obtain professional advice.

Turn findings into sale conditions

A due diligence issue does not always require the buyer to walk away. It may justify a price change, a warranty, a condition, a retention or a requirement that the seller complete work before settlement. The response should match the size and likelihood of the risk.

Keep a written issues list with an owner, due date and outcome for every item. Ask advisers to explain which matters are commercial choices and which need legal, tax or regulatory treatment. Do not let the review period expire while important questions remain unanswered.

• Record each open question
• Attach supporting documents
• Set a response deadline
• Quantify costs where possible
• Update the agreement through the lawyers
• Confirm closure before going unconditional