Due Diligence Checklist for Buying a Business in Australia (Free Download)

The Complete Due Diligence Checklist for Buying a Business in Australia

Use this checklist sequentially. Phase 1 and 2 come before you sign an LOI. Phases 3–6 happen during the formal DD period after LOI is signed and access is granted.

---

Phase 1: Pre-DD Preparation

Before you request a single document, get organised. Disorganised DD wastes everyone's time and signals to the seller that you're not serious.

• Appoint an accountant experienced in business acquisitions (not just tax compliance)
• Appoint a commercial lawyer with M&A or small business acquisition experience
• Set up a secure shared folder (Google Drive or Dropbox) for the document request list
• Confirm the exclusivity period (if granted) and DD timeline in writing
• Send a formal document request list to the seller or broker on day one
• Agree on how questions will be handled (email log recommended — creates a record)
• Establish your walk-away price before you start — so you don't negotiate against yourself

Documents to request before DD formally begins:

• Last 3 years of tax returns (business entity)
• Last 3 years of profit and loss statements
• Last 3 years of balance sheets
• Last 12 months of BAS (Business Activity Statements)
• Current year-to-date management accounts
• Last 12 months of business bank statements
• Current aged debtors and creditors reports
• Asset register (all owned equipment and vehicles)

---

Phase 2: Financial Verification

The numbers the seller presents are always the best possible version of the business. Your job is to find the real version.

• Reconcile P&L figures against ATO tax returns — unexplained differences are a red flag
• Cross-check BAS lodgements against P&L revenue — revenue in the BAS that doesn't appear in P&L (or vice versa) needs an explanation
• Verify GST turnover in BAS matches reported revenue (within reasonable tolerance)
• Check ATO benchmarking for the industry — if the business is significantly outside ATO benchmarks for cost-of-sales or wages, understand why
• Identify and normalise owner's salary (add back if below market, adjust if above)
• Identify and remove one-off income items (grants, insurance payouts, asset sales)
• Identify and add back one-off expenses (legal fees, equipment purchases, COVID-related costs)
• Verify any add-back items the seller claims with supporting documentation
• Check accounts receivable ageing — any debts over 90 days are unlikely to be collected
• Check accounts payable ageing — outstanding liabilities the buyer may inherit
• Verify all loans, credit facilities, and financial obligations against the balance sheet
• Confirm whether the sale is asset or share sale — different tax and liability implications
• Check for related-party transactions (rent paid to owner, supplies from owner's other entity)
• Review the last 24 months of bank statements for unusual patterns or large unexplained withdrawals
• Request and review any loan agreements or director loans

EBITDA normalisation worksheet:

Item	Adjustment	Amount
Owner salary (market replacement)	Add cost or remove excess	$
Owner's personal expenses in business	Remove	$
One-off income items	Remove	$
One-off expense items	Add back	$
Related-party rent (above/below market)	Adjust to market	$
Depreciation (non-cash)	Add back	$
Interest on loans not transferring	Add back	$
Normalised EBITDA		$

---

Phase 3: Legal and Compliance

This phase is where your lawyer earns their fee. Don't try to do it yourself.

• ASIC company search — verify current directors, shareholders, registered address, any outstanding notices
• PPSR (Personal Property Securities Register) search on the business entity — check for any security interests registered over assets
• PPSR search on any major equipment or vehicles if included in the sale
• Verify the seller actually owns the assets being sold (asset sale) or the shares being transferred (share sale)
• Review all existing contracts (customer contracts, supplier agreements, service agreements)
• Check assignability of key contracts — many require consent from the other party to transfer
• Review the business lease: term remaining, rent reviews, option periods, permitted use, transfer conditions
• Check for personal guarantee clauses in the lease — will the landlord require you to sign one?
• Review all employee contracts — are they compliant with Fair Work Act requirements?
• Check casual employee entitlements — misclassification is an active area of ATO and Fair Work scrutiny
• Review any restraint-of-trade clauses with existing employees that could affect the business
• Search court records for any litigation history (current or recent)
• Check ASIC for any insolvency proceedings or wind-up applications
• Verify all insurance policies are current — public liability, professional indemnity, vehicle, equipment
• Review any franchise agreement if applicable — exit fees, territory restrictions, transfer conditions
• Confirm intellectual property ownership — website, trading name, trademarks, customer data
• Verify domain name and website ownership is with the business entity, not the owner personally

---

Phase 4: Operations and People

Numbers can be cleaned up. Culture and capability can't. This phase tells you what you're actually inheriting.

• Request a full employee list with tenure, role, employment type, and annual cost
• Identify key person risk — which employees would materially impact revenue if they left?
• Review recent staff turnover history (last 2 years) — cleaning businesses losing 40%+ of staff annually is a warning sign
• Check for any outstanding unfair dismissal claims or Fair Work disputes
• Review payroll records against ATO STP (Single Touch Payroll) reporting
• Verify superannuation is fully paid and up to date — outstanding super creates buyer liability in a share sale
• Check workers' compensation claims history (contact insurer directly)
• Review operations manual or standard operating procedures — does the business run on systems or on people?
• Spend at least one full day on-site observing normal operations before signing off
• Check OH&S compliance records — incident register, safety plans, current certifications
• Review equipment maintenance records and service history
• Identify any equipment at or near end of useful life that will need replacement
• Confirm all software licences and subscriptions are transferable
• Review IT infrastructure — any legacy systems with single points of failure?

---

Phase 5: Commercial Assessment

The financials tell you what happened. The commercial assessment tells you whether it can keep happening.

• Request a full customer list with revenue per customer for the last 3 years
• Calculate customer concentration — if one customer is over 20% of revenue, flag it
• Review customer contract terms — month-to-month vs multi-year; notice periods
• Check customer tenure — long-term customers (5+ years) are more stable than recent additions
• Ask the seller: which customers know about the sale? Which might leave if they found out?
• Verify revenue trend by customer — are the top accounts growing, flat, or declining?
• Review all supplier agreements — can pricing be maintained? Are there minimum purchase requirements?
• Understand the competitive landscape — is the business in a protected niche or heavily competed market?
• Check online reviews (Google, Facebook, industry directories) for reputation issues
• Verify any marketing claims — subscriber counts, review counts, certifications cited in the listing
• Ask for referral source data — how are new customers found? What happens to that pipeline if the owner leaves?

---

Phase 6: Trades and Blue-Collar Specific

This phase is often skipped entirely by generic checklists. For plumbing, electrical, cleaning, landscaping, HVAC, pest control, or any trade business — this section is non-negotiable.

Licences and Registrations:

• Verify all trade licences are current and held by a licensee who will stay post-sale (not just the selling owner)
• Check state-specific requirements: WA (Building and Energy), NSW (Fair Trading), QLD (QBCC), VIC (VBA)
• Confirm the business licence (not just the individual's licence) is properly registered
• Verify pest control, electrical, plumbing, or gas fitting licences with the relevant state authority — don't rely on the seller's documentation alone
• Check contractor licences for any sub-contractors used regularly
• Verify accreditations relevant to the industry (e.g. cleaning standards certifications, OH&S certifications for confined space or height work)

Equipment and Vehicles:

• Complete asset list with make, model, year, and estimated remaining life for all major items
• Independent mechanical inspection for all vehicles
• Independent inspection for all major equipment (pressure washers, floor machines, HVAC units, spray equipment, etc.)
• Check whether vehicles are owned outright, on finance, or leased — clarify what transfers
• Verify registration and insurance on all vehicles
• Check fuel card accounts, toll accounts, and similar — who are they in the name of?

Contractor and Subcontractor Arrangements:

• List all contractors used regularly — verify they are genuinely independent (not disguised employees under ATO guidelines)
• Request evidence of contractor ABN registrations and proof of their own public liability insurance
• Check the ATO's contractor vs employee tests — misclassified workers create PAYG withholding and super liability for the buyer in a share sale
• Understand which contractors are essential to the business — would they continue post-sale?

WHS and Compliance:

• Review Safe Work Method Statements (SWMS) for any high-risk work
• Check chemical handling and storage compliance (especially cleaning, pest control, painting businesses)
• Verify all staff have completed required safety inductions and certificates
• Review incident register for the last 3 years — patterns of incidents can indicate systemic problems
• Check workers' compensation rate — a history of claims often results in premium loading

---

How to Use This Checklist

Work through it sequentially. Not everything will apply to every business — a cleaning business has different risks to a plumbing business. Use your judgement, but don't skip a phase entirely.

If something comes back with a red flag:

1. Don't panic and don't immediately walk away
2. Quantify the risk — what would it cost to fix or absorb?
3. Use it in negotiation — a genuine finding is a legitimate reason to adjust the price
4. Decide whether the risk is manageable or a deal-breaker

When to walk away:

Walk away when you can't verify the numbers, when key staff won't commit to staying, when licences can't be transferred, or when the seller becomes difficult or evasive during DD. Difficulty during due diligence is a preview of the seller you'll be dealing with through transition.

---

This checklist is a starting point, not legal or financial advice. Always engage a qualified accountant and lawyer for your specific transaction.