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What vendor due diligence means
Vendor due diligence means examining a business from the seller's side before a potential buyer conducts their own checks. The phrase covers different scopes. It can mean practical preparation of records and questions, or a formal financial, legal or tax report prepared by appropriately qualified specialists. Agree which is being offered before commissioning it.
A buyer uses due diligence to investigate the business, the transaction and the information supplied. Business.govt.nz's buyer guide explains the role of those checks. Doing preparation first can help a seller identify gaps, but it does not remove the buyer's right to investigate or guarantee a sale.
Sale preparation and a formal report have different jobs
A sale-preparation adviser can organise the work, identify questions, help build the information index and track the actions. Your accountant examines financial reporting and earnings adjustments within their agreed scope. Your lawyer advises on contracts, title, consents, disclosures and the sale agreement. Other specialists may be needed for employment, property, environmental or technical matters.
If a buyer or lender needs a report they can rely on, ask the relevant professional about its purpose, scope, author, limitations and reliance terms. A preparation checklist or a short commercial review is not a substitute for that engagement.
Rodara's Sale-Readiness Review is a preparation assessment using your accounts and documents. The Pre-listing Second Opinion is a focused look at an existing sale pack. Neither is a formal financial audit, registered valuation or legal due diligence report.
What to gather before a buyer asks
Build an index from the transaction you expect, rather than copying a large generic request list. An asset sale and a share sale may require different information and professional checks. Identify what is included, what is excluded and which matters are unresolved.
- Financials: annual accounts, monthly trading, reconciliations, an earnings adjustments schedule, debtors, creditors, stock and work in progress where relevant.
- People and handover: an organisation chart, employment agreement register, leave information and the responsibilities held by the owner.
- Commercial relationships: customer and supplier concentration, important agreements, renewal dates and matters your lawyer needs to check.
- Premises and assets: lease documents, variations, asset records, finance arrangements and the proposed treatment of owned property.
- Operations: procedures, software ownership and access arrangements, permissions, compliance records and the information supporting growth assumptions.
The business sale document checklist turns these areas into starting tasks, with evidence guidance and responsibility fields. Mark an item ready for review only when the record can actually be found and checked.
Turn an apparent gap into a clear question
For each important issue, record the fact, the document supporting it, the question still open and the adviser responsible. Separate what is known from what you expect. “The supplier will be fine” is an assumption; an agreement and your lawyer's assessment of its change-of-ownership terms are evidence to discuss.
Likewise, an earnings adjustment needs an amount, a period, a reason and supporting records. Ask your accountant to distinguish reported EBITDA, owner pay, market replacement costs and one-off items. The earnings add-backs guide explains that preparation.
Do not conceal a difficult fact or describe an unanswered question as resolved. Agree any disclosure and remedial work with your professional advisers. Some issues can be fixed; others need to be understood in the transaction terms.
Keep the document room controlled and current
Use a secure system agreed with your advisers. Decide who can see each category, who approves access and who maintains the index. Consider whether sensitive material needs to be summarised or redacted before disclosure, taking advice where necessary.
Keep passwords and access credentials out of ordinary information packs. Maintain a question log with the request, responsible person, supporting document and current answer. Update material information as trading continues. The purpose is a usable record, rather than a folder full of duplicate attachments.
When should a seller start?
Start identifying questions before the intended listing. Allow more time for issues requiring a trading record, another person's training or external consent. The 6–12 month preparation plan is an example of how to stage that work.
If a broker has already prepared the information memorandum, agree what remains open before the pack goes to market. A focused second opinion may help prioritise those questions. Formal specialist work should be commissioned for its actual purpose and budget, rather than assumed to be included in a general preparation fee.
About the author
Oscar Rodwell runs Rodara Advisory, preparing New Zealand businesses worth NZD 1–10 million for sale. His experience owning, running and selling businesses in retail, manufacturing, hospitality and property informs his work on earnings, people, agreements and handovers. About Oscar.
