Management Buyout Checklist for Australian Small Business Buyers

Management Buyout Checklist — Australian Small Business

How to use this checklist: Work through each phase in order. Tick items off as they're completed. Some items can run in parallel (particularly Phase 3 finance and Phase 4 negotiation) but don't skip phases.

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Phase 1: Preparation (Before You Approach the Seller)

• Assess your personal financial position. Calculate your liquid assets, home equity, and SMSF balance. Identify how much equity you can contribute without overextending. A realistic MBO equity requirement is 30–50% of the purchase price.
• Estimate the business's sustainable earnings. Strip out any owner-specific costs or one-off items from the last three years of accounts. This is your rough EBITDA starting point for valuation — before the seller's accountant does their own version.
• Identify your advisors. Appoint an accountant experienced in business acquisitions (not just compliance) and a commercial lawyer before you approach the seller. You'll need them before negotiations start, not after.
• Understand the entity structure. Is the business run through a company, trust, or sole trader? Who owns the shares or units? Are there other shareholders or unit holders you don't know about?
• Check your employment contract. Some employment agreements contain non-compete or confidentiality clauses that restrict your ability to own or operate a competing business. Get legal advice if you're unsure.
• Research comparable sales. Check what similar businesses in your industry have sold for. The Industry Multiples Cheat Sheet at /resources/industry-multiples-cheat-sheet-buying-business-australia covers typical EBITDA multiples for trades and service businesses.
• Prepare a simple business plan. Lenders and the seller will want to see your plan for the business. A two to three page document covering your growth strategy, key risks, and how you'll service the debt is enough at this stage.
• Clarify your structure preference. Will you buy as an individual, through a company, or through a trust? Discuss the pros and cons with your accountant before you approach the seller.

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Phase 2: Opening the Conversation and Valuation

• Choose the right moment to approach. MBO conversations work best when they're framed around succession planning, not a transaction. Avoid approaching during a stressful period for the owner. A quiet lunch is better than a formal meeting.
• Express interest without a number. In the first conversation, establish whether the owner is open to an MBO and on what timeline — don't lead with price. "I'd love to be part of the next chapter of this business" is a better opener than "I'd like to buy you out."
• Agree on an independent valuation process. Propose that both parties use the same independent valuation as a starting reference point. This reduces the negotiation friction and signals good faith. A business accountant or registered business valuer can provide this.
• Commission or review the independent valuation. Make sure the valuation is based on normalised earnings (add-backs removed, owner salary replaced with market-rate management cost) and reflects current market multiples for your industry.
• Agree on an exclusivity period. Once you're both serious, negotiate a period of exclusivity — typically 30 to 60 days — during which the seller won't approach other buyers while you complete due diligence and finance.
• Sign a heads of agreement or term sheet. A short (2–3 page) document recording the agreed price, structure, conditions, and timeline protects both parties and keeps the deal on track.
• Notify key advisors. Brief your accountant and lawyer on the agreed heads of terms so they can begin their review and flag any structural issues before you commit to full due diligence.

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Phase 3: Finance

• Calculate your funding requirement. Total purchase price minus your equity equals the debt you need to raise. Add transaction costs (legal, accounting, stamp duty, finance fees) — typically 2–4% of the purchase price on top.
• Check whether vendor finance is on the table. Ask whether the seller is willing to provide any vendor finance. Even 15–20% in vendor finance significantly reduces your bank borrowing requirement and signals the seller's confidence in the deal. See the vendor finance guide for how to structure this.
• Approach at least two lenders. Talk to your main bank and at least one specialist business lender. Specialist lenders (Ledge, Swoop, ScotPac) are often more flexible than the majors for business acquisition lending.
• Prepare your finance package. Lenders will want: three years of business financials (and ideally a quality of earnings report), your personal financial statement, your business plan, and evidence of your industry experience.
• Understand what security the bank wants. Australian banks almost always want property security behind a business loan. Know your property equity position before you apply.
• Consider SMSF participation. If you have a self-managed super fund with sufficient assets, it may be able to co-invest in the acquisition via a limited recourse borrowing arrangement (LRBA). Get specific advice from your SMSF advisor — there are strict rules.
• Get a finance pre-approval (conditional). Confirm your borrowing capacity in writing before finalising the purchase price and structure with the seller. A conditional approval (subject to final business DD) is achievable before the SPA is signed.
• Negotiate the vendor finance terms. If vendor finance is included, agree the interest rate (if any), repayment schedule, security, and what happens in the event of default. These terms go into the SPA or a separate vendor finance deed.
• Document the full capital structure. Summarise in writing: who is contributing what equity, how much is bank debt, how much is vendor finance, and on what terms. Your lawyer will need this for the SPA and any shareholder or finance agreements.

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Phase 4: Negotiation

• Settle the total purchase price. Agree on the headline number based on the independent valuation and any subsequent negotiation. Note whether this is on a cash-free, debt-free basis and whether working capital is included.
• Choose asset sale or share sale. This decision affects both parties' tax positions. In a share sale, the buyer acquires the company (and its history, liabilities, and contracts). In an asset sale, the buyer picks up assets and nominated liabilities. Get advice on which structure suits your situation.
• Negotiate the transition period. How long will the seller remain available post-settlement? For MBOs, transition is usually shorter than for outside buyers (you already know the business), but you still want a minimum of 30 days and access for 90.
• Agree the restraint of trade. The seller should be restrained from working in the same industry or with the same customers for a defined period and geographic area. Typically 2–3 years and within the business's existing service area.
• Confirm employee entitlements treatment. In an asset sale, prior service entitlements (long service leave, redundancy) can be complex — clarify with your lawyer which entitlements transfer and which the seller is responsible for.
• Agree the earn-out structure (if applicable). If part of the price is contingent on future performance, define the metric, the measurement period, the cap, and the payment mechanism clearly in the heads of agreement before engaging lawyers to draft the SPA.
• Confirm key customer and supplier consents. Identify any material contracts that require consent to assign or change of control notifications. Get these in motion early — waiting until settlement can derail the deal.
• Set the settlement date. Agree a target settlement date that gives enough time for finance approval, due diligence, legal documentation, and any consent processes. Six to ten weeks from signed heads of agreement is typical for a small business MBO.

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Phase 5: Due Diligence (Even When You Think You Know)

• Financial due diligence. Have your accountant independently verify the last three years of P&L, balance sheets, BAS lodgements, and ATO portal position (check for unpaid tax or open audits). Do not skip this because you've seen the monthly reports.
• Verify EBITDA add-backs. Go through every normalisation the seller has made to the reported EBITDA and verify each one. The EBITDA Add-Backs Verification Checklist covers the most common legitimate and illegitimate add-backs.
• Tax position. Confirm there are no outstanding GST, PAYG, or income tax liabilities. Request the ATO portal access or a tax clearance letter. If buying a company via share sale, this is critical — you inherit the tax history.
• Employee entitlements verification. Get a schedule of all employee entitlements (annual leave, long service leave, personal leave) and verify them against payroll records. Check that superannuation is fully paid to date.
• Legal review of key contracts. Have your lawyer review the lease, major customer contracts, supplier agreements, and any contractor arrangements. Identify change-of-control clauses that require consent.
• Licences and permits. Confirm which licences are held in the company (and transfer with a share sale) versus in the owner's name (and need to be reapplied for). Trades licences held personally by the seller are a common issue.
• Insurance review. Check what policies are in place, whether they're adequate for the business, and whether they're in the company's name. Arrange replacement or continuation policies to take effect from settlement.
• Operational assessment. Even though you run the business, formally document the key processes, technology systems, supplier relationships, and staff roles — as if you were an outside buyer. This forces you to identify gaps you've been working around.
• Customer concentration check. Verify the revenue split across customers. If one customer accounts for more than 30% of revenue, that's a material risk that should affect your price or require a specific contractual comfort.
• Any hidden liabilities. Search the Personal Property Securities Register (PPSR) for any security interests over business assets. Check for pending litigation or disputes. Your lawyer will run this as part of standard legal due diligence.

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Phase 6: Settlement

• Receive and review the Sale and Purchase Agreement. Your lawyer reviews the SPA in full. Key terms to check: conditions precedent, representations and warranties, indemnities, restraint of trade, earn-out mechanics (if applicable), and vendor finance terms.
• Satisfy conditions precedent. Conditions precedent (CPs) are things that must happen before settlement can occur — finance approved, landlord consent, key employee agreements signed. Track each CP and confirm the completion date.
• Working capital adjustment. Agree the mechanism for adjusting the purchase price based on the working capital position at settlement. The Working Capital Adjustment Template explains how this works.
• Arrange settlement funds. Confirm with your bank (and vendor finance provider) the exact amounts to be transferred on settlement day and the account details. Do a test transfer or direct debit setup in advance.
• Notify staff. Plan the staff communication for settlement day or the day before. Even in an MBO where staff know and like you, the formal change of ownership is a significant moment. The New Owner Staff Communication Scripts cover what to say.
• Transfer licences, registrations, and accounts. On or immediately after settlement: transfer ABN (if asset sale), update ASIC records (if share sale), transfer or reapply for trade licences, update bank accounts, and notify key suppliers and customers.
• First 90 days plan. Before settlement, have your First 90 Days Action Plan ready. The first week sets the tone — know what you're doing before you walk in as owner.

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Related resources:

• Deal Structure Comparison Framework — asset sale vs share sale vs vendor finance vs earn-out, side by side
• Financing Options Checklist — bank, non-bank, vendor finance, SMSF, home equity
• Management Buyout Guide — the full article on how MBOs actually work in Australia

For more on deal structure and financing, see Module 6 of the Playbook.