Information Memorandum Review Checklist: What to Check When Buying a Business in Australia

The Complete Information Memorandum Review Checklist

Work through each phase sequentially. Items marked with ⚠️ are common omission points in Australian small business IMs — the things sellers and brokers most often hope you won't ask about.

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Phase 1: First-Pass Checks (Before Reading in Detail)

Do these before investing time in the rest of the document.

• Date of preparation — How old is the IM? Anything older than 12 months needs updated financials before you proceed
• Who prepared it? — Broker-prepared IMs are polished but selective; accountant-prepared IMs tend to be more complete; seller-prepared IMs vary wildly in quality
• Is this the full IM or a teaser? — Teasers are issued before NDA; the full IM comes after. Confirm which one you're looking at and request the full version if needed ⚠️
• Page count — Under 15 pages for an established business is light; ask what sections are missing
• ABN or ACN listed? — If yes, verify on the ABN Lookup (abr.business.gov.au) and ASIC Connect to confirm entity status and name ⚠️

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Phase 2: Business Overview

• Years in operation — Look for businesses established at least five years; shorter track records carry more uncertainty
• Legal structure — Sole trader, company, or trust? The structure affects how the acquisition is set up. A trust-based business has specific transfer considerations
• Franchise or independent? — Franchises require franchisor consent to transfer; different rules apply to the entire evaluation
• Key personnel identified — List them: who stays, who leaves with the seller?
• Premises type and tenure — Leasehold or owner-occupied? If leasehold, when does the current lease expire? Is there an option to renew? ⚠️
• Licences and registrations — Are required licences (trade licences, contractor's licences) transferable to a new owner, or do you need to hold them personally? Check state-specific requirements (e.g., QBCC in Queensland, VBA in Victoria, Fair Trading in NSW) ⚠️
• Number of locations — Single site or multiple? Each additional site adds operational complexity

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Phase 3: Financial Summary

This is where most of the work happens.

• Years covered — Are two or more full years of P&L presented? Three years is better for identifying trends
• Accounts type — Tax return financials, management accounts, or accountant-prepared statements? Tax return financials are more reliable than management accounts ⚠️
• Revenue trend — Is revenue growing, flat, or declining? Growing revenue with declining profit is a different problem from stable revenue with improving margins
• Gross margin — Calculate: (Revenue minus Cost of Goods Sold) ÷ Revenue. If not shown, calculate from available figures. If not calculable, request it ⚠️
• Owner's salary — Is it included in the P&L? At what rate? An owner drawing $80K when market rate for their role is $120K is understating costs by $40K ⚠️
• Add-backs and normalisations listed — What adjustments has the seller made to EBITDA? Ask for the complete list with amounts. Common legitimate add-backs: one-off legal costs, non-recurring capex, personal expenses run through the business. Common problematic add-backs: consistent "one-off" expenses that appear every year
• Working capital position — Is net working capital mentioned? What's typical for the industry? Businesses sold without working capital provisions can create a cash shortfall on day one ⚠️
• Capex history — Has the equipment been maintained or deferred? Deferred maintenance is a hidden liability
• Debtor and creditor position — Average debtor days shown? Slow-paying customers affect actual cash flow regardless of what the P&L says
• ATO obligations — Any mention of outstanding tax debts or ATO payment plans? Silence here is worth clarifying ⚠️

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Phase 4: Revenue and Customer Base

• Revenue concentration — Is any customer responsible for more than 20% of revenue? If so, what happens if they leave? ⚠️
• Number of active customers — Fewer than 10 customers in a B2B business is high concentration; ask for the breakdown
• Contract vs ad hoc revenue — What percentage is under contract or service agreement? What's genuinely recurring vs one-off?
• Contract transferability — Can customer contracts be assigned to a new owner, or do they need to be renegotiated? This is particularly relevant for government and large corporate clients ⚠️
• Customer tenure — How long have the main customers been with the business? A 10-year customer is a different risk profile from a 2-year customer
• Pricing stability — Is revenue sensitive to commodity prices, labour costs, or contract renewals in the near term?

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Phase 5: Operations

• Staff count and structure — How many employees, and what are their roles? Part-time vs full-time ratio?
• Staff tenure — Long-tenured staff are an asset; ask for average tenure. High turnover is a signal ⚠️
• Key person dependency beyond the owner — Is there one other person whose departure would significantly harm the business?
• Owner's weekly time commitment — Not in most IMs; ask explicitly. "Semi-absentee" claims in listings routinely turn out to mean 30+ hours a week ⚠️
• Systems in use — Accounting software, job management system, CRM. Businesses running on spreadsheets and memory require more work to transition
• Supplier relationships — Any exclusive arrangements? Volume discounts that may not transfer to a new owner?
• Equipment condition — Age and condition of major plant and equipment. Ask for a list ⚠️
• Intellectual property — Trademarks, domain names, social accounts — are these in the business entity or personally held by the owner?

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Phase 6: What to Request That Isn't in the IM

Most IMs omit the following. Make a specific written request for each before proceeding:

• Customer revenue breakdown by client (top 10 at minimum) ⚠️
• Full staff list with roles, tenure, and employment type
• Most recent year's tax return (to verify P&L against ATO lodgement) ⚠️
• Current year-to-date management accounts
• Lease agreements for all premises — check expiry, options, and make-good obligations
• Supplier contracts for any material relationships
• Details of any pending or threatened legal claims ⚠️
• List of all assets included in the sale
• Confirmation of ATO compliance — no outstanding debts or payment plans ⚠️
• Equipment age list for major items

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Phase 7: Scoring and Decision Gate

Score each phase above:

Phase	Score (0–2)	Notes
Business overview
Financials
Revenue / customers
Operations
Requests fulfilled

Scoring guide:

• 2 points — Comfortable with what's presented; no material concerns
• 1 point — Needs clarification before proceeding; concern is clarifiable
• 0 points — Red flag; requires resolution before any further time is invested

Decision framework:

Total score	Action
9–10	Strong initial position — proceed to site visit and detailed financials
6–8	Proceed with specific clarifications resolved first — don't do a site visit until answers are in hand
3–5	Request substantially more information; only proceed if responses are satisfactory
0–2	Walk away, or require a significant price reduction and seller-side answers to fundamental questions

Automatic walk-away triggers (regardless of score):

• Financials are more than 18 months out of date and seller won't provide updates
• No customer revenue breakdown available at any stage of the process
• Owner appears in more than five distinct operational roles in the IM
• Outstanding ATO debt confirmed and not addressed in deal structure
• Lease expires within 12 months with no renewal option confirmed ⚠️

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What Comes Next

A positive IM review is the gate to the next stage — not the end of scrutiny. After you're satisfied with the IM and any clarifications, the sequence is:

1. Request updated or additional financials (as listed in Phase 6)
2. Site visit — meet the owner and see the operation running
3. Non-binding Letter of Intent (LOI) to secure exclusivity
4. Formal due diligence — financial, operational, legal, tax

For the full due diligence process, the full Due Diligence Checklist covers the confirmatory phase in detail. The Financial Red Flags Checklist is useful for the financial verification phase.

For deal sourcing context — how to build a pipeline so you have multiple IMs to compare — the Off-Market Deal Sourcing Playbook covers channels beyond what's listed on Bsale and Seek Business.