Before entering into any purchase of a Business you must complete your due diligence. Where to start:

1. What price should be paid? Goodwill, plant, fixtures and fittings and stock will generally make up the price. The price will be broken down into these caterogories in the Agreement with value given to each one.

2. Turnover – check the Financials and have them assessed by your Accountant, not the same Accountant as the Seller. Ensure you are covered by a Seller’s warranty, especially if a turnover figure has increased due to a one off increase in business activity.

3.  Are there any patients, trademarks or other intellectual property included in the goodwill and are they dependent on any licenses.

4. Are the premises authorised for the operation of the busines or any changes you may have planned for the business. Make appropriate checks under the Resource Management Act 1991. If the property is leased the Landlord will need to consent to the assignment of the Lease.

5. Fixtures and fittings – includes items such as machinery, vehicles, furniture etc. You should have listed all fixtures and fittings which are to be included in the purchase.  Again enquiries will need to be made to check if any of the fixtures or fittings are leased or under a hire purchase agreement as these will need to be paid out at settlement. It would be prudent to check what fixtures and fittings belong to the Landlord to ensure they are not included incorrectly by the Seller.

6. Stock – How is this to be valued? Generally an estimate figure is allocated and the actual value at the close of business on the settlement date is determined by a stock take.

7. Contracts – Are there any contracts such as to buy goods or suppy goods and or services. Ensure these pass to you on terms and conditions as they did for the Seller. Include a condition that the Seller will introduce you  to the suppliers and clients. This relationship is very important.

8. Ensure a warranty is included in the Agreement to ensure all debts and liabilities of the business are paid out at settlement.

Stay posted for the next tips on buying a business. Cheers Kim