Doing Due Diligence When Buying a Business in Australia

Buying a business can be one of the most rewarding - and risky - decisions an entrepreneur makes. Whether you’re purchasing a small café, a franchise, or an established enterprise, understanding what you’re buying is crucial. This process, known as due diligence, ensures you’re making an informed decision and helps protect you from hidden liabilities or overvalued assets.

Why Due Diligence Matters

Due diligence is the detailed investigation and verification of a business before you buy it. It’s about going beyond what the seller tells you. The goal is to confirm that the business’s financials, operations, and prospects align with your expectations.

Failing to do proper due diligence can lead to unpleasant surprises – from unexpected tax debts to declining customer bases or unrealistic profit projections. In short, due diligence is your safety net. It’s how you separate a promising opportunity from a potential problem.

15 Key Questions to Ask When Buying a Business

Here are fifteen essential questions every buyer should ask during due diligence:

1. Why is the owner selling?
2. What are the business’s true earnings after all expenses?
3. Are the financial statements accurate and verified by an accountant?
4. What liabilities or debts does the business have?
5. Are there any outstanding tax obligations?
6. What assets are included in the sale (equipment, inventory, vehicles, IP)?
7. Are there any supplier or lease agreements that will continue after purchase?
8. Who are the key customers, and will they stay with new ownership?
9. Is the business dependent on the current owner’s personal relationships?
10. What's the competition like in the local market?
11. Are there any pending legal issues or disputes?
12. Does the business have the right licences and permits?
13. What's the staff turnover rate, and are key employees likely to remain?
14. How strong is the brand reputation and online presence?
15. What growth potential or market changes could affect the business?

What to Look for During the Process

When conducting due diligence, focus on three key areas:

• Financial: Review balance sheets, tax returns, cash flow statements, and debt. Look for consistent profitability and clear accounting.
• Operational: Check how the business runs day to day — systems, processes, staff, and customer relationships.
• Legal and Compliance: Ensure the business meets all regulatory requirements, leases are transferable, and there are no hidden legal risks.

It’s also wise to review the business’s market position, competition, and any industry trends that may affect its future performance.

How to Tell if It’s a Good Business to Buy

A good business usually shows a strong customer base, steady revenue, clean financial records, and a positive reputation. Be cautious of businesses with heavy reliance on one client, poor record keeping, or unrealistic growth claims.

A fair price should reflect not only current earnings but also future potential. Independent valuations can help confirm that the asking price makes sense.

Always Seek Professional Advice

Due diligence is complex. When buying a business work with professionals - including accountants, business brokers, and commercial lawyers - they can save you from costly mistakes. They can spot red flags you might miss and ensure all documentation is accurate and legally sound.

Buying a business is a major investment, and thorough due diligence is the key to making sure it’s the right one. Take your time, ask the tough questions, and get the right advice — because the more you know before you buy, the better your future will be.

Check out the 10 Questions to Ask Before You Buy a Business

 

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