Due Diligence Explained: Essential Steps For Buying A Business In Australia

Buying a business is exciting - you’re stepping into an operation that already has customers, systems and cash flow. But before you sign anything, it’s critical to make sure what you’re buying is actually what you think it is.

That’s where due diligence comes in. It’s the structured process of checking the financial, legal and commercial health of a business so you can decide whether to proceed, renegotiate the price, or walk away.

In this guide, we’ll break down what due diligence involves in Australia, the key red flags to look for, how to choose the right deal structure, and the documents you’ll want to line up for a smooth settlement. We’ll keep it clear and practical so you can move forward with confidence.

What Is Due Diligence When Buying A Business?

Due diligence is a series of checks and verifications you complete before committing to a purchase. Think of it as “trust, but verify.”

At a high level, you’re confirming three things:

• That the business is what the seller says it is (financial performance, customers, assets and liabilities).
• That there are no hidden risks that would change your decision or the price you’re willing to pay.
• That you’ll be able to take over and run the business on day one (legally, operationally and commercially).

Most buyers conduct financial, commercial and legal due diligence in parallel. You can handle parts of this yourself, but for the legal and contractual side, getting help with a Legal Due Diligence process will save headaches later.

Step-By-Step Due Diligence Checklist

Every deal is different, but the steps below are a solid starting point for most Australian business purchases.

1) Lock In Confidentiality And Access

Before the seller shares sensitive information, you’ll usually sign a Non-Disclosure Agreement (NDA). This gives you access to documents you need to review while keeping their information confidential.

Ask for an information pack and a data room (or secure folder) with all key documents. A good seller will have these ready.

2) Verify Business Structure And Ownership

Confirm who you’re buying from and what you’re buying:

• Check ABN/ACN details, business name registrations and corporate records.
• If you’re buying shares, verify the share register and any shareholders’ rights or restrictions.
• If you’re buying assets, list the assets and liabilities included or excluded.

Your deal structure matters a lot - more on choosing between a Share Sale vs Asset Sale below.

3) Review Financial Performance

Work with your accountant to review:

• At least 3 years of financial statements and tax returns.
• Management accounts, aged receivables/payables, bank statements and BAS returns.
• Revenue drivers (top customers, pricing, seasonality) and margin trends.

Cross-check what you see with source documents. If numbers don’t reconcile, dig deeper.

4) Check Key Contracts (Customers, Suppliers, Landlords)

Ask for copies of all material contracts and identify:

• Consent or assignment requirements - many contracts require the other party’s consent before they can be transferred to you. Knowing how assignment of contracts works will help you plan for settlement.
• Termination rights, automatic renewals, exclusivity, rebates and unusual liabilities.
• Any “change of control” clauses if you’re doing a share sale.

Make a clear list of all approvals you’ll need before completion so there are no surprises on day one.

5) Lease And Property Checks

If premises are critical, the lease is a deal-defining document. Review:

• Lease term, options to renew, rent review mechanisms and incentives.
• Assignment requirements and landlord’s consent process.
• Make-good obligations and any arrears or disputes with the landlord.

If it’s a retail business, confirm whether a retail leasing regime applies and whether disclosure has been properly handled.

6) Employment And Workplace Compliance

Ask for a schedule of all staff: roles, pay rates, entitlements, start dates and any outstanding claims. Review employment contracts, policies and whether current arrangements comply with awards or enterprise agreements.

For asset purchases, consider what happens with accrued entitlements at completion (e.g. annual leave, long service leave) and ensure this is addressed in the purchase price and the contract.

7) Intellectual Property (IP) And Branding

Confirm who owns the brand and any IP that the business uses to operate:

• Trade marks, domain names and social media handles.
• Copyright in software, content, designs and marketing assets.
• Any licences-in or licences-out that are critical to operations.

If the brand is valuable, make sure registrations are valid and will be transferred at completion, or plan to register the trade marks after settlement.

8) Privacy And Data Handling

If the business collects personal information (customer lists, marketing databases, app users), request the Privacy Policy and data practices. Confirm compliance with the Privacy Act and that customer consents allow for the sale or transfer of the database.

9) Licences, Permits And Industry Compliance

Identify all licences required to operate and who holds them. Depending on the industry, this could include council approvals, health and safety permits, or professional registrations.

If the business sells goods or services to consumers, it must comply with the Australian Consumer Law (ACL) - pay attention to advertising, pricing, refund handling and any product claims.

10) Litigation, Disputes And Complaints

Ask for details of any current or threatened disputes, insurance claims, customer complaints, infringement notices or regulator investigations. One unresolved claim can change the risk profile - or your appetite for the deal.

11) Assets, Security Interests And PPSR

List all assets you’re buying and confirm they’re owned free and clear, or identify encumbrances. Search the Personal Property Securities Register (PPSR) for any registered security interests that must be released before or at completion. Understanding the PPSR is essential if the deal includes plant, equipment or stock.

12) Price Mechanism And Completion Planning

Agree how the price is calculated and adjusted (e.g. completion accounts, stock valuation, working capital). Map out the completion deliverables: consents, releases, IP transfers and handover of passwords, keys and records. A practical tool here is a completion checklist to keep all moving parts on track.

Legal Red Flags To Watch For

Due diligence is partly about finding comfort - but it’s also about spotting issues that could derail the deal or require a price adjustment. Common red flags include:

• Revenue concentration: If 40%+ of revenue comes from one customer, losing them post-settlement would hurt. Ensure their contract can be assigned and their relationship is strong.
• Unassignable contracts: If key suppliers or the landlord won’t consent, you may not be able to run the business as expected.
• Unregistered or disputed IP: If the trade mark isn’t registered, or the brand is similar to another business, you could face brand or legal challenges.
• Hidden liabilities: Warranty claims, long-dated refunds, employee underpayments or tax debts that aren’t fully disclosed.
• Security interests: PPSR registrations that won’t be released at settlement (for example, a bank or supplier with retention of title over stock).
• Non‑compliance with the ACL: Misleading or deceptive marketing, problematic terms or inadequate complaint handling. These can lead to penalties and reputational damage.
• Employment risks: Missing Employment Contracts, unpaid entitlements or non-compliance with modern awards.

A thorough contract and compliance review early on helps you quantify these risks and decide whether to proceed, renegotiate or walk away.

Choosing Your Deal Structure: Asset Purchase Or Share Purchase?

Broadly, you can buy the assets of the business (an asset sale) or buy the shares in the company that owns the business (a share sale). Both approaches are common in Australia; each has pros and cons.

Asset Sale

In an asset sale, you buy selected assets (e.g. equipment, inventory, IP, goodwill) and sometimes take on specified liabilities.

Pros:

• Cleaner separation - you generally avoid unknown historic liabilities of the seller.
• Flexibility - pick and choose the assets and contracts you want.

Cons:

• More consents - you’ll likely need assignment or novation for key contracts and the lease.
• Operational disruption - suppliers and customers may need to be re-onboarded.

Share Sale

In a share sale, you acquire the company itself, including all assets and liabilities, and the business continues uninterrupted.

Pros:

• Continuity - contracts often remain in place, and operations are less disrupted.
• Simplicity - fewer third-party consents in many cases.

Cons:

• Risk - you inherit historic liabilities, so legal due diligence must be deeper.
• Complex warranties and indemnities - your Business Sale Agreement needs robust protection.

If you’re unsure which is right for you, a quick read on Share Sale vs Asset Sale will help you frame the decision, before you get tailored advice for your situation.

Key Legal Documents For A Smooth Business Purchase

Having the right documents in place keeps your deal moving and protects you if something goes wrong. At minimum, expect to work with the following.

• Heads of Agreement (or Term Sheet): A short, non-binding document that records the agreed deal points, price and key conditions while you conduct due diligence.
• Business Sale Agreement: The main contract that sets out what you’re buying, the price and adjustments, warranties and indemnities, liability limits, restraint clauses and completion mechanics. A well‑drafted Business Sale Agreement is critical to protect you during and after the deal.
• Assignment/Novation Deeds: For transferring key contracts (customers, suppliers, leases) in an asset sale. These ensure you step into the seller’s shoes without gaps.
• IP Assignment: Transfers ownership of trade marks, domains, software and other IP at completion.
• Disclosure Letter: A seller disclosure against warranties to flush out known issues and allocate risk appropriately.
• Completion Checklist: A practical list of deliverables and actions for settlement. Use a structured completion checklist so nothing is missed on the day.
• Vendor Finance Documents: If the seller is funding part of the price, you may need a repayment schedule and security such as a Vendor Finance Agreement registered on the PPSR.

If you’d like an end-to-end package that brings these pieces together, Sprintlaw’s Business Purchase Package can cover negotiation support, drafting and completion.

How To Negotiate The Business Sale Agreement

Once your initial due diligence is underway, you’ll negotiate the Business Sale Agreement. Key areas to focus on include:

• Scope of sale: Ensure the schedule of assets, IP, stock and excluded items matches your understanding.
• Price adjustments: Agree clear mechanisms for stock, completion accounts and any deferred consideration or earn-outs.
• Warranties and indemnities: Push for robust warranties on financial statements, ownership, contracts, IP, compliance and employees. Back these with indemnities for specific risks found in due diligence.
• Liability caps and time limits: Typical deals include caps, baskets and claim periods. Make sure they’re commercially fair and don’t leave you exposed.
• Restraint of trade: Reasonable restraints prevent the seller from competing or poaching customers/staff for a period and within a defined area.
• Conditions precedent: List all consents, releases and other actions that must occur before completion (landlord consent, PPSR releases, third‑party approvals).
• Transition assistance: Agree a handover plan and, if needed, a consultancy arrangement with the seller for continuity.

If any critical contract cannot be assigned in time, consider a temporary subcontracting arrangement, price holdback or a specific indemnity until consent is secured.

Practical Tips To Keep Your Deal On Track

• Front-load the key risks: Identify the top 3-5 value drivers (for example, a major contract or the lease) and verify them first. Don’t leave critical consents to the last week.
• Map the handover: Create a day-one readiness plan covering systems access, passwords, bank accounts, insurance, payroll and supplier accounts.
• Track actions and owners: Maintain a shared action list with dates and responsibilities for both sides to avoid bottlenecks.
• Use security where appropriate: For deferred payments, consider PPSR registration or a bank guarantee to secure performance, alongside clear default provisions.
• Be realistic with timelines: Leases and third-party consents can take longer than expected. Build buffer into your target completion date.

Common Issues Buyers Encounter (And How To Address Them)

• Customer contracts can’t be assigned: Negotiate consent early or consider a price adjustment or completion condition that allows you to exit if consent doesn’t come through.
• Unclear ownership of IP: Where contractors created key assets, ensure IP was assigned to the business. If not, obtain fresh assignments before completion.
• Employment underpayments risk: Conduct a Fair Work compliance check and adjust the deal with warranties, indemnities or price changes if gaps are identified.
• Unreleased security interests: Require the seller to deliver PPSR release letters from secured parties and make releases a condition to completion.
• Hidden obligations to customers: Review refund/repair practices and ensure they align with the Australian Consumer Law. If gaps exist, update processes and reflect risk in the contract.

If an issue can’t be fully resolved pre‑completion, consider targeted indemnities, holdbacks or escrow to protect against defined risks after settlement.

What Happens After Completion?

The work doesn’t stop at settlement. Plan for the first 30-90 days to protect value and maintain momentum:

• Notify customers and suppliers (where appropriate) and communicate continuity clearly.
• Complete any deferred assignments, registrations or transfers (for example, trade marks and domain names).
• Update company records, banking mandates and insurance policies.
• Embed your policies and contracts (Privacy Policy, customer terms, staff agreements) to standardise operations.

If the transaction involves transferring shares in a private company, you may also need to complete off‑market share transfer steps, which are separate from asset transfers and require precise documentation and timing.

Where Sprintlaw Fits In

We help buyers scope and run the legal workstream from early due diligence through to completion. That can include reviewing key contracts, drafting the Business Sale Agreement, managing consent processes and preparing the settlement deliverables. If you’re weighing deal structures, we can also talk you through the implications of an asset vs share sale in your context.

If you’d like structured support, our Legal Due Diligence and Business Purchase Package are designed to keep your process clear, efficient and low‑stress.

Key Takeaways

• Due diligence is your chance to verify the business you’re buying - financially, legally and operationally - before you commit.
• Prioritise the big-ticket items early: lease, key customer and supplier contracts, IP ownership and compliance with the Australian Consumer Law.
• Choose a deal structure that fits your risk profile: an asset sale limits legacy liabilities, while a share sale offers operational continuity.
• Your Business Sale Agreement should include strong warranties, indemnities, restraints and clear price adjustment mechanisms to protect you post‑completion.
• Plan settlement with a detailed completion checklist, organise third‑party consents in advance and ensure PPSR security interests are released at or before completion.
• Targeted legal support during due diligence and contract negotiation can surface risks early, sharpen your negotiating position and smooth the handover.

If you’d like a consultation on buying a business in Australia, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.