The Complete Business Due Diligence Checklist

A profitable-looking business can still carry weak cash flow, ageing stock, an untransferable lease, customer concentration, employee liabilities or assets subject to security interests. Good due diligence turns claims into evidence and evidence into a decision.

The Australian Government recommends reviewing financial records, business operations and legal documents before buying an existing business. Its guidance also says buyers should independently check three to five years of financial information. This checklist helps you organise that work, but the exact scope should reflect the industry, price, transaction structure and risks.

1. Before requesting documents

Start by defining what you may buy. An asset purchase generally involves selected assets and business operations; a share purchase involves buying the company that owns the business. The risk profile can be very different. Obtain legal and tax advice on the proposed structure.

• Write down your investment objectives, maximum price, funding limit and minimum acceptable return.
• Identify what is included: goodwill, stock, equipment, vehicles, intellectual property, website, phone numbers, customer data, licences and lease rights.
• Clarify whether the advertised price includes stock, working capital or GST.
• Ask why the owner is selling and test whether the answer remains consistent.
• Sign a suitable confidentiality agreement before receiving sensitive information.
• Make any preliminary offer clearly subject to satisfactory due diligence, finance, lease arrangements and professional review.
• Create a secure document request list and questions log with responsible persons and deadlines.

2. Seller, entity and ownership checks

The trading name on a listing may not be the legal owner of the assets. Confirm who owns what and whether the person negotiating has authority to sell it.

• Check the ABN, entity type, GST status and trading history on ABN Lookup.
• Search ASIC registers for the company, business name holder, officeholders and external administration status.
• Match the entity shown on tax returns, BAS, bank statements, payroll, lease, licences and customer contracts.
• Obtain the current ownership structure and identify related entities or related-party transactions.
• Verify ownership and transferability of registered trade marks and other intellectual property.
• Ask about disputes, investigations, claims, warranty obligations and threatened proceedings; have a lawyer verify the position.

3. Financial due diligence

Do not stop at the profit and loss statement. The objective is to establish whether reported revenue, expenses, assets, liabilities and maintainable earnings are supported by source evidence.

Request the core financial pack

• Three to five years of profit and loss statements, balance sheets and cash flow statements.
• Income tax returns, BAS and relevant payroll tax, PAYG withholding and superannuation records.
• Business bank and merchant statements, point-of-sale reports, sales ledgers and invoice extracts.
• Aged receivables and payables, debt schedules and current ATO account balances.
• Monthly management accounts for the current year and the same period in prior years.
• Budget, forecast and assumptions, with evidence for claimed growth.

Test the numbers

• Reconcile sales from invoices or point-of-sale reports to bank and merchant deposits, BAS and the general ledger.
• Explain GST, timing, accrual and classification differences rather than assuming every difference is suspicious or harmless.
• Analyse monthly revenue, gross margin, wage ratio, rent ratio and operating expenses for unusual movements.
• Separate recurring earnings from one-off income, grants, owner benefits and unsupported “add-backs.”
• Adjust for a commercial wage where the owner performs work that a buyer must replace.
• Test working-capital needs, capital expenditure, debt servicing and cash conversion—not only accounting profit.

4. Assets, stock and property

Prepare an asset-by-asset schedule. An item appearing in the premises does not prove that the seller owns it or that it is included in the sale.

• Inspect plant, equipment, fixtures, vehicles and high-value tools; record serial numbers, condition, age and maintenance history.
• Identify leased, financed, consigned, rented or customer-owned items.
• Conduct appropriate searches on the Personal Property Securities Register and require releases where necessary.
• Obtain a stock count close to settlement, along with cost records, ageing, expiry, obsolescence, shrinkage and slow-moving reports.
• Use realisable or agreed value—not automatically the seller's original purchase cost—for obsolete or damaged stock.
• Review property title or lease, permitted use, rent reviews, options, outgoings, make-good obligations, guarantees and assignment requirements with a lawyer.
• Confirm the landlord's position early; a good business can become unattractive if its premises cannot be secured on acceptable terms.

5. Customers, suppliers and market

Historical sales matter only if customers, channels and margins are likely to remain after the owner leaves.

• Measure revenue and gross profit by customer, product, service, channel and location.
• Calculate the share of revenue generated by the top 5 and top 10 customers.
• Review customer contracts, renewal dates, termination rights, rebates, warranties, complaints and churn.
• Check whether relationships belong to the business or depend personally on the seller.
• Assess supplier concentration, credit terms, minimum orders, exclusivity, price changes and supply disruption history.
• Test local demand, competition, online reviews, industry trends, regulation and realistic growth opportunities.
• Verify that any exclusive territory, distributorship, franchise right or licence can transfer to the buyer.

6. Operations, employees and technology

Operations

• Document how a sale is generated, delivered, invoiced and collected.
• Identify key-person dependency, undocumented processes and tasks performed only by the owner.
• Review capacity, quality failures, downtime, maintenance, waste, rework, safety incidents and insurance claims.
• Visit the site and compare what you observe with the information memorandum and asset register.

Employees

• Reconcile the employee list to payroll and obtain roles, tenure, status, pay rates, awards or agreements and accrued entitlements.
• Check contractor classifications, overtime practices, leave balances, superannuation and workplace obligations with qualified advisers.
• Understand which employees are expected to transfer and how continuity of service and entitlements may be treated.
• Assess retention risk for managers, technicians, salespeople and staff holding critical licences or customer knowledge.

Technology and data

• List software, domains, cloud services, licences, hardware, integrations and recurring subscriptions.
• Confirm accounts can be transferred and are not tied to the seller's personal email or device.
• Review cybersecurity controls, backups, access rights, data incidents, privacy processes and unsupported systems.
• Estimate immediate upgrade, migration and licence costs.

7. Valuation and deal protection

The asking price is a negotiation position, not a valuation. Calculate a range using maintainable earnings, asset value, comparable transactions and the returns required for the specific risk.

• Build a bridge from reported profit to normalised, maintainable earnings.
• Deduct a market wage for owner labour and realistic ongoing costs after settlement.
• Value stock, equipment and goodwill separately where appropriate.
• Stress-test a revenue decline, margin compression, wage increase, rent increase and loss of a major customer.
• Quantify every material due-diligence finding as a price issue, cash requirement, condition or residual risk.
• Ask your lawyer to document conditions precedent, warranties, indemnities, restraint, retention or escrow arrangements as appropriate.
• Agree the completion accounts, stocktake, employee treatment, training, handover and access to records.

8. One-page master checklist

Authoritative Australian resources

• business.gov.au — Buy an existing business
• ASIC — Search ASIC registers
• Australian Business Register — ABN Lookup
• PPSR — Protecting your business assets
• Fair Work Ombudsman — When businesses change owners