When you’re buying a business in New Zealand, your best advisor is your lawyer. In any complicated business deal, your lawyer is the person who stands at your side to give you advice without any hidden agendas or mixed motives. Often, your lawyer can warn you away from potentially disastrous business deals or help you make tenuous deals work.
If you’re considering buying a New Zealand business, run through this list of questions with your lawyer.
1. What are the Ongoing Costs?
Your accountant will also want to weigh in on this question, but it’s always a good idea to start with your lawyer. While you probably know how much the business will cost upfront and what the financing costs may be, ask your lawyer to help you understand any ongoing costs for royalties, franchise payments, marketing costs and payroll expenses. Your lawyer should be able to point out any hidden issues that could keep the business from being profitable.
2. Why Are They Selling?
You’ve heard the reasons the seller gave you when you first discussed the possibility of buying their business. Running a hotel takes a lot of time and energy, and maybe they want to slow down or retire. They might say they’re just looking for a change. Now, it’s time to ask your lawyer if there are other reasons, perhaps buried a bit below the surface. What’s the true financial status of the business? Is it facing lawsuits, competitors or tax problems that didn’t appear initially? Is it profitable, or is it veering toward bankruptcy?
3. How Are the Business’s Relationships With Vendors and Suppliers?
Your lawyer should take a look at all the existing contracts the business has with vendors and suppliers. If you’re considering buying a hotel or restaurant, timely delivery by vendors is a potentially crucial issue. Your lawyer should make sure all those contracts can be transferred legally and that you will assume the same (or better) terms if you take them on.
4. What Ownership Structure Is the Most Advantageous for Your Purchase?
Should you buy the business you’re considering in your own name? Should you form a new company? What about putting the business in trust or including a trust as one of the shareholders of your company? If you’re buying a franchise, such as a restaurant, hotel or motel, that’s part of a chain, how does your choice of ownership structure interact with the franchise agreement? All these questions should be discussed with your lawyer before you make any final decisions regarding the purchase.
5. What Commitments Are You Taking on If You Buy This Business?
Is the business signatory to any leases that you’ll be committed to if you purchase it? What debt might you be taking on with this purchase, and how much of it will be discharged with the purchase? With some businesses, you’ll want your lawyer to look into the disposition of any intellectual property that the company appears to own. Does the company actually own it, and who receives the royalties? Check employment contracts as well to see whether you will need to maintain the same management team and key officers. Your lawyer can advise you on all your options after reviewing the relevant documents.
Owning a business is a rewarding venture, but only if you take proper precautions when you buy it. Start the process by doing your homework, and then sit down with your lawyer to get some wise input before you sign on the dotted line.
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