5 Mistakes to Avoid When Buying a Business in NZ

Buying a business is a life changing decision and one you want to enter with your eyes wide open. Your life will change when it's your name above the door - so here are a few tips to make sure those changes are positive.

Key Takeaways:

Always complete full due diligence before buying a business
Never rely solely on emotion or personal preference
Structure your purchase to protect personal assets
Expect some customer loss after ownership change
Work with experienced advisors to reduce risk

1. You ignored your emotion and gut feel

Facts and figures, I hear you say, are far more important - and yes they are vital, but you are also human and a business is more than just a job so acknowledge your emotional responses to the opportunity. What did you feel when you meet the team? Does this industry and opportunity really appeal to you for the right reasons? When you look at where you want to be in 5 or 10 years time - is this business going to help you get there? If it feels wrong - take time to evaluate those feelings - they have surfaced for a reason.

2. You put your name on the documents

There can be a tremendous amount of liability to buying a business in your own name - you may risk losing the lot, or possibly even more. Check with your professional advisors on how best to structute your purchase and protect your personal assets by getting expert advice around establishing a company, trust or other suitable legal entity before you sign the documents.

3. You fell in love with the product or service

While it's true you must believe in what you sell, you have to look at the business in its entirety, understand its true value, its validity now and into the future and its competitive advantage. Don't fall into the trap of believing because you love the product or service you are selling that there will always be a market for it, and that the business will always be fulfilling when you have to deal with the same clients, product or service all day, every day.

4. You assumed all the customers will stay loyal

A change of ownership could see some customers shop elsewhere - do not assume all the customers will stay with the business. You need to factor this natural attrition into your cash forecasts. You also need to explore this as part of your due diligence and see what you can do with the current owner to minimise customer loss.

5. You didn't get the right advice or people on board

Do not skimp when it comes to getting the right advice before you buy. And you probably need several professionals involved. Make sure they are the right ones - if you have a toothache you don’t call a plumber!

Regardless of the size of the business being acquired, do your homework and surround yourself with the best possible team of advisors you can afford - business advisors, your bank manger, accountant, a tax specialist, your business coach, independent directors, a lawyer, financial advisor - think long and hard about who can bring value to your decision making. Each will bring a different perspective to the table allowing you to fully analyse the opportunity.

More on Buying a Business.

Frequently Asked Questions About Buying a Business

What are the biggest mistakes when buying a business?

The biggest mistakes include ignoring due diligence, relying on emotion, failing to verify financials, assuming customers will stay, and not getting professional advice.

Why is due diligence important when buying a business?

Due diligence ensures the financial, legal, and operational details of a business are accurate before purchase. Skipping it can lead to hidden risks and overpaying.

Should I buy a business under my own name?

No, buying under your own name can expose personal assets to risk. It is recommended to structure ownership through a company or trust with professional advice.

Do customers stay after a business is sold?

Not always. Some customer loss is common after ownership changes, so it should be factored into financial forecasts.

Who should I consult before buying a business?

You should consult an accountant, commercial lawyer, and business advisor to reduce risk and structure the deal correctly.