Checklist for buying a business

Stage 1. Initial checks

• Why is the business for sale?

• Is the business in an industry you enjoy and can perform well in?

• Who is the competition? Is the business able to compete effectively against them?

• Talk to customers. What do they know about the quality of the product and service provided by this business?

• What opportunities exist for growth?

• How many hours does the owner work to achieve the current profit level?

• Ask if you can work in, or observe, the business for a few days.

Stage 2. In depth investigation

• Obtain an independent valuation of any equipment, stock, fixtures and fittings.

• Have an accountant analyse the Profit and Loss Account and the Balance Sheet. These should cover at least a three year period.

• Ask your lawyer to analyse the lease, hire purchase and employment agreements and other contracts the business has entered into.

• Discuss the opportunity with your bank. Make sure that you can afford the purchase and that the bank will support you with finance if necessary.

• Consult an independent business adviser (contact your local BIZ centre or phone 0800 42 49 46)

• Research the market and industry. Use industry organisations, library, Internet etc. Statistics New Zealand (www.stats.govt.nz) provides information on industries, visitor numbers, household incomes, growth industries etc.

• Talk to suppliers. Check that they will continue to supply when ownership changes and familiarise yourself with their products and services as well as terms of trade.

Stage 3. Purchase

• Negotiate price and terms with the owner. Use your lawyer and accountant to guide you.

• Decide on your legal entity (sole trader, limited liability, partnership etc). Your accountant and lawyer can advise you in this area and set this up.

• Organise any new supplier agreements that you need to set up and order stock, materials if necessary.

• Take over the business and start hard work.