Five tips when purchasing a business in NZ

• Published date: 24 April 2023
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Contracts and Commercial Law, Franchising
• Law Firm: LegalVision
• Author: Ms Georgina Toomey

If you want to run your own business but you feel intimidated by the high rate of failure that startups experience, you can look into purchasing an existing business. You can find businesses for sale in New Zealand on online platforms like realestate.co.nz, NZ BizBuySell or Trade Me Marketplace. Alternatively, you can instruct a broker to source potential acquisition opportunities. Before you make an offer, you need to carefully research the business and do your due diligence to ensure you are paying a fair price. This article lists some key points and tips to help you make an informed decision when purchasing a business in New Zealand.

Before You Buy

Purchasing a business can greatly impact your life. Therefore, you should not entertain the decision lightly. Before making an offer, you need to:

• understand the type of business you are buying;
• research the target business's market, suppliers and competitors;
• conduct due diligence before you sign the sale and purchase agreement (or make it conditional on the satisfaction of a due diligence investigation);
• register your formal interest in buying the business with the person appointed to manage the sale;
• engage a professional adviser (a lawyer or accountant) to represent you; and
• ask as many questions as possible about the business to determine whether any underlying issues could impact your revenue post-sale, such as the potential loss of critical customers.

If you are buying a franchise, be wary of large upfront fees or being rushed to buy in. You may be entitled to a seven-day cooling-off period after signing your franchise agreement if your franchisor belongs to the Franchise Association of New Zealand. Franchise agreements can be complicated, so it is best to get legal advice before signing. Alternatively, you could get free advice from the Franchise Association of New Zealand. Before you buy a franchise, you should ask:

• for a disclosure document that outlines the company's history and track record; and
• how you are required to pay ongoing costs such as advertising and stock.

1. Do Not Skimp on Your Due Diligence

No matter how tedious or boring, you should never skimp on your due diligence when purchasing a business. This process helps you determine whether the business is profitable and whether the vendor's estimates and projections are over-optimistic. To conduct due diligence on the business, you should check:

• if the business has any pending court cases or legal disputes;
• if it owns all key...