Buying a business can be an exciting growth step but it’s also one of the biggest financial decisions you’ll ever make. Before you commit, it’s important to look beyond the sales pitch and dig into the details with a pre-purchase business review.
This process gives you the clarity and confidence to know whether the business is truly a good investment, or if there are risks hiding beneath the surface.
Here’s what a thorough review should include:
Financial Review
The first step is testing the financial reality of the business. Don’t just take the numbers at face value, ask the hard questions:
- Profitability – is the business consistently profitable, or are profits driven by one-off events?
- Cash flow – strong, positive cash flow is often more important than profits on paper.
- Debts and liabilities – what loans, tax obligations, or other commitments come with the business?
- Trends over time – reviewing at least three years of accounts will help you spot patterns and red flags.
Legal and Compliance Checks
Even a profitable business can create headaches if compliance isn’t in order. A review should cover:
- Contracts and leases – are supplier agreements, customer contracts, or property leases transferable?
- Employee obligations – holidays, KiwiSaver, PAYE, or personal grievances to be aware of?
- Regulatory compliance – is the business up to date with industry standards, licences, and filings?
Operations and Systems
Behind the numbers is the day-to-day running of the business. Ask yourself:
- Are there reliable systems in place for accounting, stock management, and payroll?
- Is the business dependent on one or two key people, or does it run smoothly without them?
- What does customer retention look like - are relationships tied to the current owner, or with the business itself?
Market and Growth Potential
Finally, consider the bigger picture.
- Customer base – is it broad and stable, or reliant on a few big clients?
- Competitors – how does the business stack up in the local market?
- Opportunities – is there room for expansion, or is the market saturated?
Why It Matters
A pre-purchase review isn’t about talking you out of a deal - it’s about making sure you go in with your eyes open. Done well, it highlights risks, uncovers opportunities, and helps you decide whether the price is fair.
Think of it as an investment in peace of mind. Spending a little time and money upfront on the review can save you from costly surprises later.
Considering buying a business?
We’ve helped many New Zealand business owners through the acquisition process. If you’re looking at a potential purchase, let’s talk before you sign.