Business Acquisition Due Diligence Checklist: The Complete Guide for Australian Buyers

Due diligence isn't about ticking boxes. It's about finding the truth before you write the cheque.

I've been involved in more acquisitions than I can count over 20+ years in private equity and corporate advisory. The pattern is always the same: the deal looks great on the surface, the numbers seem solid, the seller is charming — and then due diligence reveals the thing that changes everything.

Sometimes it's a good thing. Hidden value the seller didn't know how to articulate. More often, it's the thing that makes you renegotiate or walk away entirely.

This isn't a theoretical checklist. It's the actual list I work through on every acquisition. I've shared parts of this process on my YouTube channel — including the stories behind why certain items are on the list. The short version: every item exists because I've seen it go wrong.

How to Use This Checklist

Don't try to do everything at once. Due diligence is sequential:

Phase 1 (Week 1–2): Financial and Commercial. This is where most deals die. Start here. If the numbers don't work, nothing else matters.

Phase 2 (Week 2–4): Operational and Legal. Once the financials check out, dig into how the business actually runs and what legal landmines exist.

Phase 3 (Week 3–6): People and Integration. The final layer. Who stays, who goes, and how do you transition without breaking what works.

Budget 4–8 weeks for a small business acquisition. Larger or more complex deals take longer. Don't let anyone — the seller, the broker, or your own excitement — rush you through this.

Financial Due Diligence

This is the foundation. Get this wrong and everything built on top of it collapses.

Revenue Verification

Expense Analysis

Categorise all expenses and identify any that are personal (owner's car, phone, family salaries, travel)
Calculate normalised EBITDA after removing personal expenses and one-offs
Identify below-market arrangements (rent from owner's property, family labour, informal supplier deals)
Review subcontractor costs — are they consistent, or hiding employee misclassification?
Check insurance costs — are they adequate, or has the seller been underinsured to boost margins?
Review warranty and rework costs — are they properly provisioned?
Analyse cost trends — are margins expanding, stable, or compressing?

Working Capital

Calculate average debtor days — how quickly do customers pay?
Age the receivables — is there a concentration of overdue accounts?
Identify any bad debts written off in the last 3 years
Calculate average creditor days — how quickly does the business pay suppliers?
Review inventory levels (if applicable) — is there obsolete or slow-moving stock?
Calculate normalised working capital requirements — this affects the purchase price adjustment at settlement

Tax and Compliance

Verify all BAS lodgements are current
Confirm superannuation is paid and up to date for all employees (critical with Payday Super starting July 2026)
Check for any ATO debt or payment arrangements
Verify payroll tax compliance (thresholds vary by state)
Review workers' compensation premiums and claims history
Check for any outstanding tax audits or disputes

I go deep on financial due diligence in my YouTube content — including the specific red flags that most first-time buyers miss and the adjustments that swing valuations by hundreds of thousands of dollars.

Operational Due Diligence

Numbers tell you what the business did. Operations tell you whether it can keep doing it.

Premises and Assets

Inspect all business premises — condition, suitability, safety compliance
Review lease terms — remaining term, renewal options, rent review mechanisms, make-good clauses
Assess landlord relationship and willingness to assign or transfer the lease
Obtain an equipment list with ages, conditions, and replacement timelines
Check vehicle fleet — registration, condition, maintenance history, finance obligations
Review any owned property — title search, encumbrances, environmental issues
Identify any assets not included in the sale (and why)

Systems and Technology

Inventory all software and systems used in the business
Assess the job management or CRM system — is it populated with clean data?
Check for manual processes that should be automated (quoting, invoicing, scheduling)
Review IT infrastructure — is it current, secure, and scalable?
Confirm software licences are transferable
Identify any proprietary systems or intellectual property
Assess cybersecurity posture — data backups, access controls, incident history

Processes and Documentation

Request Standard Operating Procedures (SOPs) for core business functions
Assess training documentation for new employees
Review quality control processes and any quality certifications (ISO, etc.)
Check WHS (Work Health and Safety) documentation — policies, risk assessments, incident logs
Review any industry-specific compliance documentation
Assess how much operational knowledge exists only in the owner's head

Supply Chain

Identify key suppliers and assess dependency on any single supplier
Review supplier contracts — terms, exclusivity, termination provisions
Check pricing stability — are input costs rising faster than the business can pass on?
Assess supply chain risks — single-source materials, import dependencies, lead times
Talk to key suppliers (with seller's permission) about the relationship and any concerns

Legal Due Diligence

Engage a lawyer with business acquisition experience. This isn't a DIY section.

Contracts and Agreements

Review all customer contracts — terms, duration, termination provisions, change-of-control clauses
Review all supplier contracts — same considerations
Identify any contracts with change-of-control clauses that could be triggered by the sale
Review any partnership or joint venture agreements
Check for non-compete agreements that could restrict the business post-sale
Review any franchise agreements (if applicable)

Employment and Industrial Relations

Obtain a complete staff list with roles, salaries, entitlements, and tenure
Calculate accrued leave liabilities (annual leave, long service leave, personal leave)
Review employment contracts and ensure they're compliant with Fair Work Act
Identify the applicable Modern Award or Enterprise Agreement
Check for any current or pending workplace disputes, claims, or grievances
Review independent contractor arrangements — are they genuinely contractors or misclassified employees?
Confirm all employees have been paid correctly (overtime, penalties, allowances)

Regulatory and Licensing

Identify all licences and permits required to operate the business
Confirm all licences are current and transferable (or re-applicable by the new owner)
Check for any regulatory investigations, notices, or enforcement actions
Review environmental compliance (particularly for trades involving hazardous materials)
Check for any pending regulatory changes that could affect the business

Intellectual Property

Identify all trademarks, trade names, and domain names — confirm ownership
Review any patents or registered designs
Assess brand value and reputation (Google reviews, social media presence)
Check for any IP disputes or infringement claims

Litigation

Request disclosure of all current, pending, or threatened litigation
Review historical litigation — even resolved matters reveal patterns
Check for any undisclosed claims that could emerge post-settlement

Commercial Due Diligence

This is where you pressure-test the business's market position and growth prospects.

Market and Competition

Define the business's market — geographic scope, service area, customer segments
Identify direct competitors and assess their relative strength
Assess market trends — is the market growing, stable, or declining?
Identify potential disruptors (technology changes, regulatory shifts, new entrants)
Check industry reports (IBISWorld is the standard Australian source)

Customer Analysis

Analyse customer retention rate — what percentage of customers return?
Identify the top 20 customers by revenue and assess relationship quality
Talk to 3–5 key customers (with seller's permission) about their experience and likelihood of staying
Review customer complaints and how they were resolved
Assess the sales pipeline — what's in the funnel for the next 6–12 months?
Check Google reviews and online reputation — trends matter more than the overall score

Pricing and Margin

Benchmark pricing against competitors — is the business competitively priced?
Analyse margin by service/product line — are any loss-making?
Assess pricing power — can prices be increased without losing customers?
Review any long-term fixed-price contracts that may become unprofitable

People Due Diligence

Businesses are people. This section determines whether the people stay and whether the culture survives the transition.

Key Person Assessment

Identify key employees whose departure would materially impact the business
Assess retention risk for each key person — are they loyal to the business or to the owner?
Develop a retention plan for critical staff (bonuses, career development, equity, or simply respect)
Assess the management team's capability to run the business without the owner

Owner Transition

Define the owner's current role in detail — what do they do each day?
Quantify owner dependency — what happens if the owner doesn't show up for a month?
Negotiate transition support — duration, capacity, availability
Identify the owner's key relationships (customers, suppliers, staff) and plan for handover
Assess the owner's motivation for selling — does it affect their willingness to transition properly?

Culture and Team Dynamics

Observe the team during a site visit — morale, communication, professionalism
Review staff turnover history for the last 3 years
Identify any workplace culture issues that could surface post-acquisition
Assess training and development investment — has the owner invested in the team?

The Red Flags That Make Me Walk Away

After 20+ years, I've developed a short list of deal-killers. These aren't judgment calls — they're hard stops:

1. Financials that can't be reconciled. If the P&L doesn't match the BAS, and the BAS doesn't match the bank statements, the numbers are unreliable. You can't value what you can't verify.

2. Extreme owner dependency with no transition willingness. If the owner IS the business and isn't willing to stay for 6–12 months to transition, you're buying a shell.

3. Single customer concentration above 30%. One phone call from that customer could destroy the business overnight. No amount of discount compensates for that risk.

4. Undisclosed liabilities. If I find something material that wasn't disclosed — tax debts, pending litigation, employee claims — trust is broken. And if you can't trust the seller during due diligence, you can't trust the transition.

5. Deteriorating margins with no clear cause. Flat or declining margins that the seller can't explain usually mean structural problems that will get worse, not better.

I cover these red flags and the stories behind them in detail on my YouTube channel. The specific examples are more instructive than the general rules — every red flag has a face and a dollar figure attached to it.

After Due Diligence: Making the Decision

Due diligence doesn't give you a yes-or-no answer. It gives you information to make a decision.

Three possible outcomes:

Proceed at the agreed price. Rare, but it happens when the business is exactly as presented. Sign the contract.

Proceed at a revised price. Most common outcome. Due diligence reveals issues that weren't apparent. These should be reflected in a lower price, additional vendor finance, or restructured terms. Good sellers expect this. The negotiation after due diligence is often where the real deal gets done.

Walk away. The hardest decision, especially when you've invested weeks of time and thousands in professional fees. But the cost of walking away from a bad deal is always less than the cost of buying one.

I've written about the full acquisition process in my guide on how to buy a small business in Australia, including what happens after due diligence through to settlement and day one.

The Bottom Line

Due diligence isn't about finding perfection. No business is perfect. It's about understanding what you're buying clearly enough to make a rational decision and price it correctly.

The best due diligence I've ever done found a problem that saved me $200,000 on the purchase price. The worst due diligence I've ever done missed a problem that cost me more than that to fix.

Take the time. Do the work. Check every box — not because it's required, but because every unchecked box is a risk you're accepting without knowing its size.

If you're working through due diligence on a specific deal and want a second pair of eyes, book a conversation. I've reviewed hundreds of deals and I'm happy to point out what you might be missing.

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