Business due diligence in NZ

Business due diligence in New Zealand helps buyers verify a business’s financial performance, commercial position and operational risks before committing to an acquisition. For sellers, it means providing accurate records and clear explanations that support the sale.

This guide outlines the financial, legal and operational checks buyers should consider, the documents sellers should prepare and how both parties can manage confidential information, resolve issues and plan the handover.

The aim is to identify matters that could affect value, funding or sale terms while there is still time to address them.

Key idea: Buyers need evidence to test the opportunity. Sellers need organised records and clear explanations that stand up to scrutiny.

Understand the business due diligence process

Buyers should use due diligence to test the assumptions behind their offer.

Test the sale proposition

• Are the earnings sustainable?
• Are key contracts secure and transferable?
• Can the team operate the business independently?
• What investment or working capital will be required after settlement?
• Could any findings affect price, funding or sale terms?

Sellers should be ready to support their representations with records and consistent explanations. Material issues are easier to assess when their background, financial effect and proposed resolution are clearly explained.

Typical stages of a business purchase

Due diligence sits within the wider purchase process. The stages below are indicative and may overlap, depending on the business and agreed sale terms.

The precise sequence will depend on the business and sale structure, but the principle remains the same: control access, establish expectations and resolve material issues systematically.

Buyers: review financial performance

Start with the historical financial statements and current trading performance.

Review management accounts, revenue trends, margins, cash flow, customer concentration and the sales pipeline or order book. If forecasts have been provided, understand the assumptions supporting them and test how sensitive the expected results are to changes in those assumptions.

Test earnings adjustments and forecasts

Check whether proposed earnings adjustments are supported by evidence and whether any removed costs will need to be replaced after the owner leaves.

For forecasts, examine the assumptions about revenue, margins, staffing and investment. Test how changes in those assumptions would affect earnings and cash flow.

Buyers: assess customers and revenue

Identify the customers, suppliers, contracts, people and capabilities that generate revenue and keep the business operating.

Check customer concentration and key relationships

• Why do customers choose the business?
• How secure are its most important customer and supplier relationships?
• Is revenue dependent on one contract or a small group of customers?
• Does critical knowledge sit with the owner or a small number of employees?
• Will important relationships, licenses and contractual rights transfer?
• What investment will be required after acquisition?

This analysis helps to distinguish a business with transferable value from one whose performance depends heavily on its current ownership.

Buyers: check operations and legal obligations

Review the people, premises, systems, assets and obligations required to keep the business running.

Review contracts, assets and compliance

This may include;

• Key employees and employment arrangements
• Customer and supplier contracts
• Leases and other property arrangements
• Plant, equipment and stock
• Licenses, consents and insurance
• Technology and cybersecurity
• Intellectual property
• Health and safety and other compliance records
• Current or potential disputes and liabilities

Ask your accountant, lawyer and relevant specialists to assess matters that could affect value, transaction structure or ongoing obligations before the purchase becomes unconditional.

Business due diligence checklist

Sellers: prepare your due diligence documents

Sellers who prepare a business for sale before approaching the market are better placed to build the data room, identify information gaps and resolve inconsistencies before an offer arrives.

Start with the core material:

• Historical financial statements and current management reports
• Asset and stock information
• Key customer and supplier contracts
• Lease and property documentation
• Relevant employment information
• Licenses and consents
• Insurance and compliance records
• Details of material disputes or liabilities

Build an organised business-sale data room

Organise the information logically, confirm documents are current, and maintain a record of what has been disclosed, when, and to whom. Early preparation gives the seller and their advisers time to identify gaps and decide how to explain material issues.

Protect confidential business information

A prospective buyer needs enough information to assess or progress an offer, but not every document should be released at the outset.

Disclose customer identities, pricing, individual employee information, trade secrets, and other sensitive material progressively, subject to the buyer’s qualifications, the stage of the transaction, and your legal obligations.

Control access and disclosure

Before releasing information, consider:

• Is the buyer properly qualified and bound by appropriate confidentiality obligations?
• Is the information necessary at this stage?
• Can sensitive information be anonymised, summarised or redacted?
• Should access be restricted within the data room?
• Do privacy, contractual or regulatory obligations limit disclosure?

Manage the due diligence review

Agree the scope, timing, responsibilities and question process at the outset.

Coordinate buyer questions and responses

Using one clear channel for questions makes the review easier to manage and reduces the risk of different advisers or employees providing incomplete or inconsistent answers. It also helps the parties distinguish routine information requests from issues that could materially affect the transaction.

Resolve issues before the deal becomes unconditional

If an issue emerges, address it directly: explain its background, what has been done and what remains unresolved. It may lead to a condition, price adjustment, indemnity, warranty or another contractual protection. An issue disclosed early and managed properly is generally less damaging to buyer confidence than a late surprise.

Plan the business handover

Due diligence should look beyond settlement and establish how ownership will transfer without disrupting the business.

Agree transition tasks and responsibilities

The parties should establish:

• When and how assets, systems, contracts and information will be transferred
• Who will introduce the buyer to important customers and suppliers
• What access, training and operational support will be required
• How employees will be managed and communicated with
• Whether the seller will remain involved for a defined handover period
• Who is responsible for each transition task

Turn the sale agreement into a practical handover

The sale and purchase agreement records the parties’ legal obligations. The transition plan translates those obligations into a practical change of ownership.

Both matter. A carefully negotiated acquisition can still lose value if the handover disrupts customers, employees or day-to-day operations.

Next step: Buying or selling a business? Talk to Bayleys Business about planning the sale process and coordinating due diligence with your professional advisers. Read our related guides to preparing your business for sale and understanding business valuation methods and deal structures.