Before you start: get the agreement right
Due diligence only protects you if your agreement for sale and purchase gives you the right to walk away. Make sure it is conditional on satisfactory due diligence and finance, with realistic dates. Business.govt.nz recommends that a lawyer draft or review the contract, including price and payment terms, a restraint of trade on the vendor, staff provisions and a buffer period for financial due diligence.
Start your funding conversation at the same time. Due diligence and finance run in parallel, and both need to be satisfied by the condition date.
Financial due diligence
| Check | Why it matters |
|---|---|
| Three years of financial statements plus current management accounts | Establishes trend and current trading |
| GST returns for the same period | Turnover in GST returns should reconcile to reported sales |
| Business bank statements | Confirms cash actually received matches the accounts |
| Aged debtors and creditors | Reveals slow payers, disputes and overdue suppliers |
| Customer concentration | How much revenue comes from the top five customers |
| Gross margin by product or service line | Tests whether margins are sustainable |
| Owner’s wages and add-backs | Every add-back should be evidenced |
| Forecast for the current year | Compare to year-to-date results |
A useful test: reconcile three sources. If sales in the accounts, the GST returns and the bank deposits all tell the same story, you can have more confidence. If they do not, find out why.
Tax due diligence
- IRD statements. Request statements showing GST, PAYE, income tax and any arrears or instalment arrangements. If you are buying shares in a company rather than its assets, historic tax liabilities stay with the company.
- PAYE and KiwiSaver. Confirm employer deductions have been filed and paid on time.
- GST on the sale. A sale of a going concern between GST-registered parties can be zero-rated if the agreement meets the requirements. Your accountant should confirm.
Tax debt is a growing issue. Companies Office figures reported by NewsWire in September 2026 showed Inland Revenue bringing around two-thirds of company winding-up applications in 2026. A business with hidden tax debt is a serious risk if you are buying its shares.
Asset due diligence
- Asset register. List every item of plant, equipment and vehicles included in the sale.
- PPSR search. Search the Personal Property Securities Register against the vendor. Any security interest must be released or paid out at settlement.
- Condition. Inspect major equipment and get maintenance records.
- Stock. Agree how stock will be counted and valued, and exclude obsolete lines.
- Intellectual property. Confirm the business owns its name, trade marks, website domain and social media accounts, and that they transfer.
Legal and company due diligence
- Companies Office. Check the Companies Register for directors, shareholders, annual returns and any insolvency history.
- Lease. Review the term remaining, rights of renewal, rent review mechanism, the landlord’s consent requirements for assignment, and make-good obligations. The lease may be one of the most valuable assets you are buying.
- Key contracts. Supply agreements, customer contracts, franchise agreements and distribution rights. Check for change-of-control clauses.
- Disputes. Ask about current or threatened claims, customer complaints and regulatory issues.
- Licences and consents. Alcohol licences, food registrations, resource consents and industry-specific certifications may need to be transferred or reissued.
People due diligence
- Employment agreements for every staff member, including pay rates, hours and any unusual terms.
- Accrued entitlements, such as annual leave and alternative holidays. Agree how these will be handled at settlement.
- Key person risk. Which staff hold critical customer relationships or technical knowledge? Will they stay?
- Health and safety. Review the business’s health and safety records and any WorkSafe involvement.
Staff generally do not transfer automatically when a business is sold. The buyer usually offers new employment. Some specified categories of workers have transfer rights under Part 6A of the Employment Relations Act, so take employment advice.
Commercial due diligence
- Why is the vendor selling? Verify the reason against the financials.
- Competition. Visit competitors and talk to suppliers where appropriate.
- Customer feedback. With the vendor’s permission, speak to a few key customers.
- Market outlook. Is the industry growing or shrinking in your region? Our regional pages summarise local conditions.
Funding due diligence
Your lender will also have requirements. For a property-secured acquisition loan, expect to provide:
- the conditional agreement for sale and purchase
- details of the security property and existing mortgage
- a summary of the business and your experience
- your cash contribution
No financials or tax returns are needed for the initial assessment of a property-secured loan. See funding to buy an established business.
After due diligence
If everything checks out, confirm the conditions in writing. If issues arise, you may be able to renegotiate the price, require the vendor to fix the problem before settlement, or add specific warranties and indemnities. If the issues are serious, walking away is sometimes the best decision you will make.
Quick answers
How long should due diligence take?
For an established SME, two to four weeks is common, depending on complexity and how organised the vendor is. Agree a realistic period in the conditional agreement rather than rushing.
Do employees automatically transfer when I buy a business?
Generally not. Staff usually need to be offered new employment by the buyer. Some specified categories of workers, such as certain cleaning and food catering roles, have protections under Part 6A of the Employment Relations Act. Get employment advice before settlement.
What is a PPSR search?
The Personal Property Securities Register records security interests over personal property such as plant, vehicles and stock. Searching it shows whether a lender or supplier has a claim over assets you are buying.
Should I get finance approval before or during due diligence?
Start the finance conversation as soon as the agreement is signed. A property-secured loan needs no financials for the initial assessment, which helps keep finance on track while due diligence continues.