What Does ‘Going Concern’ Mean In Business?

“Going concern” is one of those phrases you’ll hear when buying or selling a business, talking to your accountant, or reviewing your company’s financials - but what does it actually mean for you in practice?

In Australia, “going concern” has two common uses. First, it’s an accounting assumption that your business will keep operating for the foreseeable future. Second, it’s a legal and tax concept used in business sale transactions that can affect price, risk, and even GST.

In this guide, we’ll break down both meanings in plain English, explain why “going concern” status matters, and outline the practical steps to protect yourself whether you’re selling, buying or simply running your business day-to-day.

What Does “Going Concern” Mean, Exactly?

The Accounting Assumption

In accounting, the going concern assumption means your business is expected to continue operating for at least the next 12 months - meeting debts as they fall due, fulfilling contracts, and not being forced to liquidate. Financial statements are prepared on this basis unless there’s a material uncertainty about your ability to keep trading.

Why it matters: if your business is not considered a going concern, assets and liabilities may need to be valued differently, and your directors and lenders will expect a plan to address the risk.

The Business Sale Context (Often With GST Implications)

When people say they’re “selling the business as a going concern”, they usually mean they’re transferring an operating enterprise with everything needed to keep trading from day one. In Australia, if certain conditions are met (including that all things necessary to carry on the enterprise are supplied, the enterprise is carried on until completion, and the parties agree in writing), a sale of a going concern can be GST-free.

Why it matters: whether a deal qualifies as a “supply of a going concern” can affect price adjustments, tax, and the allocation of risk in your contract.

When Is A Business A “Going Concern” For A Sale?

There isn’t a single checklist that fits every industry, but in practice, a buyer receiving a going concern should get the pieces that make the business work today. Typically, that includes:

• Business premises (or the lease) and any required fit‑out and equipment.
• Key licences and permits that are capable of transfer or re-issue.
• Operational systems, IP and data (brand assets, domain, website, customer lists, SOPs).
• Stock, work‑in‑progress and supplier arrangements needed to keep trading.
• Staff transferring (where agreed) so the service or production doesn’t stop.
• Current contracts capable of assignment or novation (with consents where required).

Crucially, the seller must continue to operate the business up to completion. A gap in trading or missing “must-have” assets can undermine going concern status and, in some cases, the deal’s GST treatment.

Share Sale vs Asset Sale

Whether you buy shares in the company or purchase the business assets affects how “going concern” is handled and what needs to be transferred. A Share Sale vs Asset Sale comparison is a good way to sense-check the right path for your situation.

How Do You Prove Or Protect “Going Concern” Status In A Deal?

The safest approach is to spell it out clearly in your contract and run thorough due diligence. Here are the key steps both sides should consider.

1) Put It In The Contract

Your primary document is the Business Sale Agreement (or a Share Sale Agreement for a share deal). Typical clauses will:

• Record the parties’ intention that the sale is of a going concern and, where applicable, is GST‑free.
• List “all things necessary” being transferred - assets, IP, contracts, licences, employees, stock and records.
• Include seller warranties about continued operation up to completion and accuracy of information.
• Set conditions precedent (e.g. landlord, franchisor or key client consents) that must be satisfied before completion.
• Deal with apportionments (rent, utilities), employee transfers and adjustments to the purchase price.
• Require releases of security interests (PPSR) and delivery of key documents at completion.
• Contain post‑completion restraints to protect the goodwill you’re buying.

A clear contract framework reduces the risk of disputes and helps demonstrate that the parties genuinely intended a sale of a going concern.

2) Run Proper Due Diligence

As a buyer, you want evidence that the business is viable and that everything required to run it will actually be yours on day one. A structured review - often via a Legal Due Diligence process - should cover:

• Contracts and consents (are critical agreements assignable? Any change‑of‑control clauses?).
• Licences and compliance (are they current and transferable?).
• Employment terms and entitlements (and who pays what on transfer).
• Financials, tax registrations and any outstanding statutory filings.
• IP ownership and brand protection (trade marks, domains, content).
• Leases and property obligations, including make‑good and outgoings.
• Security interests (PPSR) that need to be released before completion.

A practical way to keep this on track is to align your reviews with a clear Completion Checklist so there are no surprises at settlement.

3) Keep Trading To Completion

For sellers, it’s important to keep operating the business in the “ordinary course” up to completion. Don’t shut down systems, terminate staff, or let key contracts lapse without buyer consent - moves like these can jeopardise going concern status.

4) Plan The Money Flows

Some deals use staged payments or terms to help the buyer fund the purchase. If that’s on the table, document it properly - for example, via a Vendor Finance Agreement - and ensure it aligns with the sale agreement.

Common Contract Clauses Tied To “Going Concern”

To make the “going concern” promise real, your sale agreement will usually include some or all of the following:

• Going Concern Warranties: Seller confirms they will carry on the enterprise until completion and that all necessary assets and rights are included in the sale.
• Conditions Precedent: Items like landlord consent or franchisor approval that must occur before you’re obliged to complete.
• Assignment/Novation Mechanics: How key contracts are transferred (and what happens if a consent isn’t obtained).
• Apportionments and Adjustments: How rent, utilities, pre‑paid amounts, stock and WIP are handled.
• Employee Transfers: Offers of employment, recognition of service and who covers accrued entitlements.
• Restraint and Confidentiality: Protect the goodwill by limiting the seller from competing or soliciting staff/customers for a period.
• Indemnities and Risk Allocation: Who bears the risk if a consent doesn’t come through, a warranty is breached, or GST treatment changes.

Because these clauses can be technical and high‑stakes, many founders choose to engage a Business Sale Lawyer early to negotiate the right protections.

What If There Are Doubts About Going Concern (Solvency) In My Business?

On the operating side, if there are signs your business may not remain a going concern - for example, cash flow pressure or inability to meet debts as they fall due - it’s important to act early. Directors of companies have duties to manage solvency risk and to avoid insolvent trading.

Tools like a cash flow forecast, creditor engagement and cost adjustments can help. From a governance perspective, company directors often pass a Solvency Resolution when required under the Corporations Act to record their assessment. If the pressure persists, seek professional advice promptly - addressing the issue early is far better than reacting late.

Practical Tips For Sellers And Buyers

For Sellers: Preparing To Sell As A Going Concern

• Map the “must‑have” assets and consents that a buyer needs to keep trading - then make sure they’re current and ready to transfer.
• Keep operations stable: avoid major changes to staff, suppliers or premises without buyer engagement.
• Tidy your paperwork: renew licences, gather contracts, and ensure IP is owned by (and registered to) the selling entity.
• Be transparent on risks: disclose known issues early so the contract can allocate responsibility clearly.
• Lock down the deal in a comprehensive Business Sale Agreement with precise schedules and a robust completion process.

For Buyers: Verifying You’re Getting A True Going Concern

• Start with a clear scope: list exactly what you need to operate on day one (systems, stock, licences, premises access, key staff).
• Stress‑test “all things necessary”: if any critical asset/consent is missing or non‑transferable, build a workaround (e.g. a temporary licence, transitional services) into the contract.
• Cross‑check consents timing against your settlement date so you’re not left in limbo.
• Use a structured due diligence process and align it with your completion checklist so nothing is missed.
• Consider whether an asset deal or share deal better preserves continuity for customers and staff - revisit the Share Sale vs Asset Sale trade‑offs before you sign heads of agreement.

FAQs About Going Concern In Australia

Is a going concern sale always GST‑free?

Not automatically. Whether a sale of a going concern is GST‑free depends on meeting specific conditions (including supplying all things necessary, continuing the enterprise until completion, and the parties agreeing in writing). Your contract should deal with what happens if GST treatment changes - for example, who bears the cost if GST becomes payable.

Does “going concern” guarantee profitability?

No. Going concern simply means the business is expected to continue operating. It doesn’t guarantee profits. Buyers should review financials, customer retention, supplier stability and market conditions during due diligence.

Do I need different contracts if the business is sold as a going concern?

The core sale agreement remains central, but you’ll likely need supporting documents such as assignment deeds, novations, IP assignments, employee transfer letters and any finance documents. If some price is paid over time, a tailored Vendor Finance Agreement can sit alongside the main sale agreement.

What happens if a key consent doesn’t come through?

Your contract should address this - common options include delaying completion, price adjustments, carve‑outs, or (for essential items) termination rights. Conditions precedent and risk allocation clauses are designed to manage these scenarios.

Key Takeaways

• “Going concern” has two uses in Australia: as an accounting assumption (your business will keep operating) and as a business sale concept that can impact GST and deal structure.
• For a sale to qualify as a going concern, the buyer must receive “all things necessary” to carry on the enterprise, and the seller must keep trading until completion - your contract should spell this out clearly.
• A robust Business Sale Agreement, targeted due diligence and a clear completion checklist are the best tools to protect both sides.
• Choosing between an asset deal and a share deal affects how continuity is achieved - revisit the pros and cons in Share Sale vs Asset Sale before you commit.
• If your operating business faces going concern (solvency) doubts, act early and consider governance steps such as a Solvency Resolution while you work on solutions.
• Tailored documents (including a Vendor Finance Agreement where needed) help align the money flows with the legal mechanics of your deal.

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