Business Accountants: Top 5 Considerations for Acquiring a Business in New Zealand


Are you looking to enter the world of entrepreneurship but concerned about the high failure rates associated with startups? If so, exploring the option of purchasing an established business could be your pathway to success. In New Zealand, you’ll find an array of businesses available for acquisition on platforms like realestate.co.nz, NZ BizBuySell, and Trade Me Marketplace. Alternatively, you can enlist a broker to help identify potential opportunities. Before making any commitments, it’s vital to conduct thorough research and due diligence to ensure a fair deal. This article presents essential insights and advice to guide your decision-making process when acquiring a business in New Zealand.


Pre-Purchase Preparations


Purchasing a business is a substantial decision with far-reaching implications. Prior to extending an offer, it’s crucial to:


– Gain a deep understanding of the business type you’re interested in.
– Research the target business’s market, competitors, and suppliers.
– Perform comprehensive due diligence before finalizing the sale and purchase agreement or incorporating a due diligence condition.
– Officially express your interest in acquiring the business to the designated seller.
– Collaborate with a professional advisor, such as a lawyer or accountant, to represent your interests.
– Pose thorough inquiries about the business to uncover potential post-sale revenue impact factors, such as the risk of losing critical customers.


If you’re considering a franchise, remain cautious of sizable upfront fees or being pressured into a hasty decision. The Franchise Association of New Zealand’s members offer a seven-day cooling-off period after signing franchise agreements. Legal counsel is recommended to navigate complex franchise agreements. Alternatively, the Franchise Association offers free advice. When dealing with franchises, request a disclosure document outlining the company’s history, track record, and ongoing cost structure.


1. Thorough Due Diligence is Non-Negotiable


Regardless of how tedious it might seem, never underestimate the importance of due diligence. This process helps you ascertain the business’s profitability and assess the accuracy of the seller’s estimates and projections. During due diligence, evaluate:


– Pending legal disputes or court cases involving the business.
– Ownership of critical assets, including intellectual property.
– Various contracts such as employment, sales, supply, rent, and service level agreements.
– Loyalty of crucial staff, customers, and suppliers to the current owner.
– The strength of contractual arrangements in existing relationships.


2. Legal Counsel is Essential


Acquiring a business entails numerous legal agreements ranging from employment to sales and supply contracts. Seeking legal advice is imperative, especially for deciphering unfamiliar clauses or agreements. Legal experts ensure no crucial details are overlooked.


Your lawyer can also guide you on transaction structuring, including necessary changes to legal agreements. They can help manage risk through strategies like vendor warranties and advice on liability limitations. If necessary, they’ll assist in establishing a new company (Special Purpose Vehicle) and manage employee transfers.


3. Consider an Independent Valuer


While you might attempt to assess the business’s value independently, access to accurate information is essential. Standard valuation methods exist, and your accountant or an independent valuer can aid you. The valuation process combines financial statement analysis and market economics. Although formal valuations provide starting points, actual sale prices depend on buyer and seller motivations and their negotiation positions.


4. Gradual Handover Strategy


Some business owners prefer gradual handovers, allowing you to pay the sale price from generated profits. This arrangement reassures the seller about your commitment to the business’s success. Discuss this option with the seller, especially if they appear hesitant to sell or as a bargaining strategy.


5. Strategic Approach to Business Restructuring


For businesses with existing employees, decide whether you’ll retain them and include this in the sale and purchase agreement. If not, the seller must handle any necessary redundancies before the transition.


The Employment New Zealand guidelines offer direction on restructuring processes based on factors such as employment agreements and business size.


Purchasing a business in New Zealand is a pivotal decision. Register your formal interest, but first invest time and effort into thorough research encompassing the business’s market, competitors, and suppliers. The due diligence process uncovers underlying issues, while an independent valuer ensures fair pricing. Legal expertise is crucial for agreement review and risk management. If restructuring is on the horizon, follow Employment New Zealand’s guidelines and address redundancies pre-transition. With the right approach, acquiring a business can be your pathway to entrepreneurial success.


Frequently Asked Questions


1. Is buying an existing business a viable option?


Purchasing an established business offers advantages like immediate cash flow and existing contracts. If you’re averse to startup challenges, this route could be ideal.


2. How does due diligence work in business acquisition?


Due diligence involves analyzing the business’s financial status, legal obligations, and more. Engaging experts like lawyers, accountants, and valuers can facilitate a comprehensive evaluation.


3. How can I determine if a business is worth buying?


Valuing a business requires a blend of financial statement analysis and market economics. Independent valuers ensure a thorough assessment of the business’s worth.

 

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