In recent weeks, we've seen a significant increase in people coming to us for help with purchasing a business. Whether you're looking for a career change, seeking financial independence, wanting to be your own boss, or you're already a business owner aiming to grow through acquisition, buying a business can be an exciting opportunity. However, it's also one of the biggest financial decisions you'll ever make, and getting it wrong can be costly.
At RightWay, we've identified some critical considerations that every prospective business buyer needs to understand before signing on the dotted line. More importantly, we're offering pre-purchase advice that could be the difference between a sound investment and an expensive mistake.
Understanding who's really working for you
Here's something many first-time business buyers don't realise: the business broker or the party selling the business is working for the vendor, not for you. Their job is to achieve a successful sale at the best possible price for the seller.
Think of it like selling a house. The real estate agent will answer all your questions and provide information, but at the end of the day, they're advocating for the seller's interests. The business broker operates the same way. They'll tell you what you need to know to move the sale forward, but they're not looking out for your best interests.
This doesn't mean brokers are dishonest, most are professional and ethical. But it does mean you need independent advice from someone who is working for you and has your interests at heart.
Can you actually afford this business?
This might seem like an obvious question, but you'd be surprised how many people don't properly calculate whether they can genuinely afford the business they're considering. The excitement of business ownership can cloud practical judgment.
Before you fall in love with a business opportunity, sit down and work out exactly how much money you need to bring home each week, month, and year to cover your personal financial obligations. This includes:
- Mortgage or rent payments
- Rates and insurance
- Living expenses
- School fees or childcare
- Vehicle costs
- Existing debt repayments
- A buffer for unexpected expenses
Many people change careers by buying a business, hoping for better financial outcomes and opportunities. But if the business can't generate enough profit to cover both its operating costs and your personal draw, you'll find yourself in a difficult position very quickly.
The reality of business lending
If you're planning to borrow money to purchase the business, you need to understand the lending landscape before you start serious negotiations.
Lending for business purchases often differs significantly from home lending. If the loan is unsecured, meaning it's not backed by property or other substantial assets, the interest rates are likely to be considerably higher than what you're used to with a mortgage. These higher rates need to be factored into your financial forecasts to determine whether the business can genuinely afford the debt servicing while still paying you adequately.
Getting lending advice early in the process helps you understand what's actually achievable and prevents you from pursuing opportunities that simply won't stack up financially once the real cost of borrowing is factored in.
The power of pre-due diligence
Traditionally, due diligence happens after a sale and purchase agreement has been signed by both the vendor and the purchaser. However, we're finding that more savvy buyers are coming to us earlier in the process, before they put in an offer.
These buyers bring us the information memorandum package provided by the broker, along with any key financial information they've received. This is what we call the "pre-due diligence process," and it's becoming increasingly popular for good reason.
What pre-due diligence involves
When you engage RightWay for pre-purchase advice, we review the information memorandum from an independent, objective perspective. This is crucial because buying a business is often an emotional decision. Your heart can easily overrule your head, and enthusiasm can blind you to warning signs that would be obvious to an experienced observer.
Our independent oversight includes:
Market Analysis: We compare the business to competitors in the market. Is it genuinely competitive? Does it have sustainable advantages? Is the asking price reasonable compared to similar businesses?
Financial Analysis: We thoroughly analyse the numbers provided in the information memorandum. Are they realistic? Are there any red flags? Do the profit margins make sense for the industry?
Reverse Cash Flow Forecasting: We help you work backwards from your personal income needs. Starting with how much you need to take home, we calculate upwards to determine what the business actually needs to generate. Then we assess whether that level of performance is realistic given the business's history and market position.
Staffing Considerations: Are you taking on existing staff? If so, is there enough in the budget to pay them and yourself? Many buyers forget to properly factor in their own salary, assuming they'll just "take what's left." This approach rarely works out well.
Asset Assessment: How old are the assets you're buying? What's their useful life once you acquire them? You don't want to purchase a business only to discover that critical equipment needs replacing within six months, requiring a capital injection you hadn't budgeted for.
Full due diligence support
If you decide to proceed after our pre-purchase review, the team at RightWay will fully support you through the acquisition process. Our comprehensive due diligence includes:
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Understanding your goals and motivations, is this the type of business that fits you best?
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Reviewing financial performance, cash flow, and key risk areas
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Analysing how the business operates day-to-day and what will be required of you
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Working alongside your lawyer to ensure the legal structure you’re purchasing under is appropriate, and reviewing the valuation methodology used to determine the purchase price
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Helping you understand transition requirements and what support you'll need post-purchase
This thorough approach proves to lenders that you've done your homework and can genuinely afford the business. It also gives you confidence that you're making an informed decision based on facts, not just enthusiasm.
Our pre-purchase advice package
At RightWay, we offer a pre-purchase advice package for $595+GST. This includes:
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An independent review of the information memorandum you've been provided
- A discussion to understand your goals and what you want to achieve from the business acquisition
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A one-hour meeting with our team to discuss what we've discovered
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Feedback about the considerations you should take into account
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Clear guidance on whether the opportunity stacks up financially
We genuinely believe this will be the best $595.00+GST you ever spend, whether you ultimately proceed with the business purchase or not.
Think about it this way: if our review identifies a fatal flaw that saves you from a poor investment, that $595.00+GST could prevent losses of tens or hundreds of thousands of dollars. If our analysis confirms the business is sound and helps you negotiate better terms, that investment could pay for itself many times over. And if we help you structure your approach more effectively, you'll start your business ownership journey with confidence and clarity.
Don't make an emotional leap without a safety net
Buying a business is exciting, and it's natural to get emotionally invested in the opportunity. Obtaining independent advice is a small price to pay for giving you confidence to move through the biggest financial commitment in your life.
Too many buyers rush in based on emotion and later regret not seeking professional advice earlier. Don't let yourself be one of them. The business opportunity might look perfect on paper, but an experienced set of eyes can spot issues you might miss in your enthusiasm.
Getting started with RightWay
If you're considering purchasing a business, we'd love to talk with you before you put in an offer. Our team has extensive experience with New Zealand businesses across various industries, and we understand what makes a good business opportunity versus one that looks good on paper but won't deliver in reality.
Whether you're a first-time buyer or you've acquired businesses before, our pre-purchase advice service provides an objective, professional perspective that helps you make better decisions.
Don't make the emotional leap without getting the right advice from the start. Contact RightWay today to discuss your business purchase plans.
Disclaimer: The information provided in this article is intended for general informational purposes only and may not apply to the specific details of your business. For personalised and tailored advice, we recommend reaching out to our professional team. While we strive to provide accurate and up-to-date content on our website, RightWay assumes no responsibility for any business loss or damage that may arise from relying on the information provided.
