Due Diligence Checklist for Buying a Business: What to Investigate Before You Sign

With acquisition enquiries running high, we're spending a lot of time with buyers on the same question: what should I actually be checking before I commit? Due diligence is where a good-looking deal either holds up or falls apart. Rushing it, or delegating it entirely to a broker's information memorandum, is the most common cause of buyer's remorse we see.

Here is the checklist we work through with clients, organised into the four areas that matter.

1. Financial Due Diligence

• Normalised EBITDA — has the vendor's add-back schedule (owner salary, one-off costs, discretionary spending) been independently verified, not just accepted?
• Revenue quality — how much of revenue is recurring or contracted versus one-off? What is customer concentration, is any single customer more than 15–20% of revenue?
• Margin trends — is gross margin stable, improving or eroding over the last three years, and why?
• Working capital — what level of working capital does the business actually need to operate, and is it included in the purchase price or funded separately?
• Historical tax compliance — outstanding BAS, PAYG, superannuation guarantee or ATO payment plans should be flagged and dealt with before settlement, not inherited.
• Debtor and creditor ageing — are debtors collectible, and are there any disputed or aged creditor balances?

2. Commercial Due Diligence

• Customer contracts — are key contracts assignable to a new owner, or do they require customer consent or renegotiation on change of control?
• Supplier terms — are supply agreements on standard terms, or is the business dependent on informal, relationship-based arrangements with the outgoing owner?
• Competitive position — what actually stops a competitor from taking market share post-acquisition? Pricing power, switching costs, brand, geography?
• Industry and regulatory outlook — any pending regulatory changes, technology shifts or industry headwinds that could affect the business in the next three to five years?
• Reason for sale — retirement and succession are healthy reasons; a vague or shifting explanation warrants closer scrutiny.

3. Legal Due Diligence

• Lease terms — remaining term, rent reviews, assignment or change-of-control clauses, and landlord consent requirements.
• Employee entitlements — accrued leave, long service leave liabilities, and whether employment contracts transfer or need to be re-issued.
• Licences and permits — are all operating licences current, transferable, and held in the entity being sold rather than personally by the vendor?
• Litigation and disputes — any current, threatened or historical litigation, WorkCover claims, or unresolved customer disputes?
• Intellectual property — trademarks, domain names, software licences and any IP actually owned by the business rather than licensed personally to the vendor.
• Restraint of trade — is the sale agreement drafted with an enforceable restraint preventing the vendor from competing with you post-sale?

4. Operational Due Diligence

• Key-person risk — how much of the business's performance depends on the outgoing owner's personal relationships and know-how?
• Management and staff — is there a capable second-in-charge, and are you confident key staff will stay through the transition?
• Systems and processes — are operations documented, or does critical knowledge live only in the owner's head?
• Plant and equipment condition — independent valuation and condition assessment for any material equipment included in the sale.
• IT and data — what systems, data and customer records transfer with the business, and are they in good order?
• Handover plan — a documented transition period with defined vendor involvement, not a vague verbal assurance.

Red Flags Worth Slowing Down For

• Add-backs that feel aggressive or can't be clearly substantiated with paperwork.
• A vendor unwilling to commit to any handover period at all.
• Declining revenue explained away as "temporary" without supporting evidence.
• Heavy reliance on one customer, one supplier, or one key employee.
• Reluctance to provide full financial records, or records that don't reconcile to lodged tax returns.

None of these are automatic deal-breakers on their own, but each one should adjust either the price, the deal structure, or the warranties and indemnities you negotiate into the sale agreement.

How Due Diligence Findings Affect Your Finance

Due diligence isn't just a buyer protection exercise, it directly feeds into how a lender assesses and prices your acquisition facility. Clean, well-documented financials and a genuine handover period generally support higher gearing and better pricing. Thin documentation or heavy key-person risk usually means a lender asks for a larger equity contribution, tighter covenants, or additional security.

Running due diligence and your finance process in parallel, rather than sequentially, is how experienced buyers keep transactions moving without losing leverage in negotiations.

Glenclair Financial works alongside your accountant and lawyer throughout due diligence, translating findings into the right funding structure, and running a full market tender across 60+ lenders to secure the best available terms.

If you're in due diligence on a target business now, or about to start, get in touch and we'll help you think through the financing implications early.