What’s Included in a Pre-Purchase Business Review?

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. A thorough pre-purchase review can be the difference between a successful acquisition and a costly mistake.

Why You Need a Pre-Purchase Business Review

Many business buyers rely solely on the seller’s information or conduct only a cursory review before making an offer. This approach can lead to unexpected problems after the purchase, including:

• Discovering hidden debts or tax liabilities
• Inheriting compliance issues that require immediate attention
• Finding that profit figures were inflated or unsustainable
• Realizing key customers or staff are planning to leave
• Uncovering equipment or systems that need urgent replacement

A comprehensive pre-purchase business review protects your investment by identifying these issues before you sign on the dotted line. It provides an objective assessment of the business’s true condition and helps you negotiate a fair price based on facts, not promises.

Key Components of a Pre-Purchase Business Review

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 Analysis
Is the business consistently profitable, or are profits driven by one-off events? Look at profit trends over multiple years to understand whether the business generates sustainable earnings. Watch for unusual income spikes that might be due to temporary circumstances, such as a large one-time contract or the sale of assets.

Cash Flow Assessment
Strong, positive cash flow is often more important than profits on paper. A business can show a profit in its accounts while struggling with cash flow problems that make it difficult to pay suppliers, staff, or loan obligations. Examine cash flow patterns to ensure the business can meet its ongoing commitments.

Debts and Liabilities
What loans, tax obligations, or other commitments come with the business? Understanding the full picture of what you’ll be taking on is crucial. This includes bank loans, hire purchase agreements, tax arrears, GST obligations, and any other financial commitments.

Historical Trends
Reviewing at least three years of accounts will help you spot patterns and red flags. Look for consistent growth, stability, or concerning declines. Consider seasonal variations and how they affect the business throughout the year.

Financial Verification
Cross-check the financial statements against bank records, GST returns, and tax filings. This helps verify that the numbers presented are accurate and complete. Look for discrepancies that might indicate issues with record-keeping or, in worst cases, financial misrepresentation.

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? Some contracts include clauses that allow the other party to terminate upon change of ownership. Understanding these provisions helps you assess whether key relationships will continue after purchase.

Employee Obligations
Are there outstanding holiday pay liabilities, KiwiSaver obligations, or PAYE matters to be aware of? Review employment agreements to understand what commitments you’ll inherit. Check for any pending personal grievances or employment disputes that could become your problem.

Regulatory Compliance
Is the business up to date with industry standards, licences, and filings? Depending on the industry, this might include health and safety compliance, industry-specific licences, resource consents, or professional certifications. Non-compliance can result in fines, operational disruptions, or reputational damage.

Intellectual Property
Verify that the business owns the intellectual property it claims, including trademarks, patents, copyrights, and domain names. Ensure these assets can be transferred as part of the sale.

Business Resources

Assets Review
Look at the condition, age, and maintenance of key assets. Will they support the business going forward, or are costly replacements on the horizon? This includes equipment, vehicles, technology, and property. Request maintenance records and consider having specialist inspections for significant assets.

Inventory Assessment
If the business holds stock, examine its condition, turnover rates, and valuation. Old or obsolete inventory may be worth significantly less than stated on the balance sheet. Understand the stock management systems and whether they provide accurate, real-time information.

Human Resources
Review the current team. Are there key people whose departure would leave a gap? How strong is staff retention and what do employment agreements look like? Understanding the team’s skills, experience, and stability helps you assess whether you can maintain business continuity after purchase.

Operations and Systems

Behind the numbers is the day-to-day running of the business. Understanding operational aspects is essential for a smooth transition.

Systems and Processes
Are there reliable systems in place for accounting, stock management, and payroll? Well-documented processes make it easier to take over and run the business effectively. Poorly documented or overly complicated systems can lead to errors and inefficiencies.

Key Person Dependency
Is the business dependent on one or two key people, or does it run smoothly without them? A business that relies heavily on the current owner or a few key staff members carries significant risk. Consider whether the owner is willing to provide a transition period to help transfer relationships and knowledge.

Customer Retention
What does customer retention look like—are relationships tied to the current owner, or with the business itself? High customer turnover or personal relationships that won’t transfer can significantly impact future revenue.

Supplier Relationships
Evaluate relationships with key suppliers. Are there favorable terms that might not continue under new ownership? Are there alternative suppliers if current relationships don’t transfer smoothly?

Market and Growth Potential

Finally, consider the bigger picture and the business’s position in its market.

Customer Base Analysis
Is it broad and stable, or reliant on a few big clients? A concentrated customer base creates risk—losing one or two major clients could devastate the business. Conversely, a diverse customer base provides more stability and growth opportunities.

Competitive Landscape
How does the business stack up in the local market? Understanding the competitive environment helps you assess the business’s strengths and vulnerabilities. Research competitors’ offerings, pricing, and market positioning.

Growth Opportunities
Is there room for expansion, or is the market saturated? Consider potential opportunities such as new products or services, geographic expansion, additional marketing channels, or operational improvements that could increase profitability.

Industry Trends
What’s happening in the broader industry? Are there technological changes, regulatory shifts, or market trends that could affect the business’s future viability? Understanding these factors helps you make a forward-looking assessment rather than just evaluating past performance.

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. The cost of a thorough review is typically a fraction of the purchase price, yet it can reveal issues that might justify a significant price reduction or, in some cases, walking away from a bad deal.

A comprehensive review also strengthens your negotiating position. When you understand the business’s true condition, including any problems or opportunities, you can negotiate more effectively. You might negotiate a lower price, request that certain issues be resolved before completion, or structure the deal to protect yourself against identified risks.

The Review Process

Working with experienced advisors makes the pre-purchase review process more thorough and efficient. At Evolve Accounting, we guide buyers through each stage:

1. Initial Assessment – We review the information provided by the seller to identify areas requiring deeper investigation.
2. Financial Analysis – Our team examines financial statements, tax returns, and records to verify the business’s financial health.
3. Due Diligence – We conduct detailed checks on legal, compliance, and operational matters.
4. Risk Identification – We highlight potential issues and assess their impact on the business’s value and future performance.
5. Reporting – We provide a comprehensive report summarizing our findings and recommendations.
6. Advisory Support – We help you understand the implications of our findings and support you through negotiations and decision-making.

Frequently Asked Questions

How long does a pre-purchase business review take?

The timeline varies depending on the business’s size and complexity, but typically ranges from two to six weeks. Factors affecting the timeline include the quality of records provided, the business’s complexity, and how quickly information requests are answered.

What does a pre-purchase review cost?

Costs vary based on the business’s size and the review’s scope. We provide transparent quotes upfront so you can budget accordingly. Remember that this investment can save you significantly more by identifying issues before purchase or helping you negotiate a better price.

Should I conduct a review even for a small business purchase?

Absolutely. While smaller businesses may require less extensive reviews, the principles remain the same. Even modest investments deserve proper due diligence to protect your hard-earned money.

What happens if the review uncovers problems?

Identifying issues gives you options. You might negotiate a lower price, request that the seller address problems before completion, structure the deal differently, or decide the risks outweigh the benefits and walk away. Knowledge gives you power in the negotiation process.

Can I conduct the review myself?

While you can review some aspects yourself, professional advisors bring experience, objectivity, and expertise that’s difficult to replicate. We know what to look for, ask the right questions, and can spot red flags that inexperienced buyers might miss.

What information will I need from the seller?

Typically, you’ll need financial statements for at least three years, tax returns, details of assets and liabilities, employee information, contracts and leases, compliance documentation, and operational information. We can provide you with a comprehensive checklist.

How confidential is the review process?

Maintaining confidentiality is crucial during business transactions. We work within confidentiality agreements to protect both buyer and seller interests while ensuring you get the information needed to make an informed decision.

Take the Next Step with Confidence

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.

At Business Like NZ Ltd we understand that buying a business is both exciting and daunting. Our experienced team provides the thorough, objective analysis you need to make confident decisions. We’ll help you understand what you’re really buying, identify potential issues, and ensure you’re paying a fair price.

Don’t leave your business purchase to chance. Contact Business Like NZ Ltd today to discuss your pre-purchase review needs. Our team is ready to provide the expert guidance that helps you move forward with confidence.

Ready to get started?

📞 Call us: 09 262 0726
📧 Email: info@blnz.co.nz

Focus on what you love—we’ll handle the due diligence. Wherever you are in New Zealand, we’ve got you covered. Let’s ensure your business purchase is built on a solid foundation.