Going Concern: What It Means For Australian Businesses

If you’re running (or buying) a business, you’ll eventually hear the phrase “going concern”. It pops up in business sales, leases, lending, bookkeeping, and sometimes at the worst possible moment - when cash flow is tight and you’re trying to work out whether the business can keep trading.

For many Australian small businesses and startups, “going concern” sounds like accounting jargon. But it can have very real legal and commercial consequences, especially if you’re:

• selling your business (or buying one),
• raising funding,
• restructuring,
• negotiating with suppliers or landlords, or
• dealing with insolvency risk.

Below, we’ll break down what a going concern is, why it matters, and the key legal and practical steps you can take to protect yourself - whether you’re the owner, a buyer, or a founder trying to keep the business stable while you grow.

What Does “A Going Concern” Mean In Australia?

In plain English, a going concern is a business that is expected to keep operating into the foreseeable future.

So when people say “the business is a going concern,” they generally mean the business is trading normally and isn’t expected to shut down soon (for example, because it can pay its debts as and when they fall due, has access to funding, and has a viable operating model).

This concept comes up in a few common contexts:

• Accounting and financial reporting: financial statements are usually prepared on the assumption the business will continue operating.
• Business sale negotiations: parties may be buying/selling the business as a going concern (i.e. an operating business with systems, customers, staff, goodwill, supplier relationships, and ongoing revenue).
• Tax/GST treatment: in some business sales, there may be special GST treatment where the sale is of a going concern. This is a technical area and the GST-free rules only apply if specific legal requirements are met, so you’ll usually confirm the position with your accountant or tax adviser (Sprintlaw can help with the legal documents, but we don’t provide tax advice).
• Risk management and insolvency: if there are doubts about whether the business can keep trading, directors and owners need to be careful about the decisions they make (and get early professional advice where needed).

Importantly, “going concern” isn’t just about whether you’ve had a good month. It’s about whether the business is reasonably expected to continue operating - taking into account cash flow, debts, contracts, and the real commercial environment.

Why Does “Going Concern” Matter For Small Businesses And Startups?

Most founders and business owners are focused on building product, winning customers, and keeping staff paid. That’s normal - but the going concern concept matters because it can affect the choices you make (and how other people view your business), including:

1) It Impacts Business Value And Sale Outcomes

When a business is clearly operating as a going concern, buyers are generally paying for more than just “assets”. They’re paying for:

• existing customers and revenue,
• the brand and goodwill,
• the team (or at least the systems to run the team), and
• workflows and supplier arrangements that make the business operable on day one.

If there’s doubt the business can continue operating, the buyer may push for a lower price, insist on stronger warranties/indemnities, or even restructure the deal as an asset-only purchase rather than “buying the business”.

2) It Influences How You Negotiate With Landlords, Lenders And Suppliers

If your landlord or lender is worried about your ability to keep trading, they may:

• ask for a director’s personal guarantee,
• require additional security,
• shorten payment terms,
• refuse to extend credit, or
• require updated financial information.

Those commercial pressures can become a cycle - which is why it’s helpful to identify and address going concern risks early, rather than waiting until someone else forces the issue.

3) It Raises Legal Risk If You Keep Trading While Insolvent

If your business is a company, directors have duties and can face serious consequences if the company trades while insolvent. This article is general information only (not insolvency advice), but even if you’re not yet insolvent, warning signs that the business may not remain a going concern should prompt you to slow down and get tailored legal and accounting advice.

This is one area where early action is genuinely protective - it’s often much easier to fix cash flow, renegotiate contracts, or restructure when you still have options.

Common Situations Where “A Going Concern” Comes Up

You don’t need to be preparing audited accounts for “going concern” to be relevant. Here are a few scenarios where small businesses and startups commonly encounter it.

Buying Or Selling A Business

In a sale, the seller may say they are selling the business “as a going concern” - meaning the buyer is stepping into an operating enterprise, not just purchasing equipment or a domain name.

This is where the documentation becomes crucial. A well-drafted Asset Sale Agreement (or a business sale agreement) typically covers what’s actually being sold, what must be transferred at completion, and what happens if something is missing or can’t be assigned (like a lease or supplier contract).

If you’re the buyer, you should be thinking about whether the business can truly continue operating immediately after settlement. For example:

• Can the lease be assigned (or will you need a new lease)?
• Are key supplier/customer contracts transferable?
• Will essential staff stay on?
• Is the brand and IP actually owned by the seller?

Even a profitable business can stop being a going concern very quickly if one key contract can’t be transferred.

Raising Capital Or Bringing On A Co-Founder

Investors (including sophisticated investors) will often assess whether your business is “fundable” partly by asking: can this business keep operating long enough to execute the plan?

If you’re bringing on co-founders or investors, your governance documents matter more than you might expect. A clear Shareholders Agreement can help manage decision-making during tough periods (for example, capital calls, deadlocks, and exit scenarios) - which can be crucial when the business is under pressure.

Securing Or Renewing A Lease

Leases can be a make-or-break operational factor for many businesses (retail, hospitality, medical, warehousing, and professional services).

If you’re buying a business that operates from premises, you’ll usually need a proper lease assignment or new lease. A Deed of Assignment of Lease is commonly used when the tenant’s rights and obligations are being transferred to a buyer.

If the lease can’t be assigned (or the landlord won’t consent), that can threaten whether the business can continue operating - and therefore whether you’re really buying a “going concern” at all.

Financial Reporting And “Going Concern” Assessments

Even if you’re a small business, you may need to prepare financial statements for a lender, investor, grant, or internal planning. If there are doubts about ongoing trading, accountants may flag a “going concern” issue or require additional disclosures/notes.

That doesn’t automatically mean the business is failing - but it does mean you should treat the issue seriously and get on top of the underlying cause (often cash flow timing, debt load, or loss of a major customer).

How Do You Know If Your Business Is Still A Going Concern?

There’s no single test that applies to every business. But there are common “red flags” that suggest the business may not be able to continue trading in the normal way.

If you recognise several of these at once, it’s a good idea to pause and get advice (legal and accounting) before signing new deals or taking on more debt.

Common Warning Signs

• Cash flow problems that don’t resolve: you’re regularly late paying BAS, super, rent, suppliers, or wages.
• Over-reliance on one customer, supplier or platform: if they leave, the business can’t operate.
• Short-term debt funding long-term operations: using credit cards or short-term loans to cover ongoing overhead.
• ATO pressure: payment plans that keep being renegotiated (or defaults).
• Inability to obtain finance: lenders refuse further funding or ask for more security.
• Legal disputes: threatened litigation, unpaid invoices escalating, or key contracts being terminated.
• Negative net assets: liabilities exceed assets and there’s no realistic plan to recover.

Practical Questions To Ask Yourself

• If we had a “normal bad month”, could we still pay our key debts?
• What happens if our best client leaves next quarter?
• Do we have contracts in place that give us predictable revenue, or are we relying on goodwill and informal arrangements?
• Are we signing agreements that increase fixed costs without a clear plan to cover them?

Founders often push through difficult periods (and that resilience is a strength). The key is making sure you’re not taking on avoidable legal risk while trying to keep the business afloat.

Legal And Commercial Steps To Protect Your Business As A Going Concern

If your goal is to keep your business stable - or to sell it as an operating enterprise - you want to reduce uncertainty. That usually means tightening up contracts, protecting assets, and making sure key relationships can survive change.

Here are steps we often suggest small businesses think about.

1) Get Your Contracts Working Properly

For many businesses, “going concern value” comes from predictable revenue and enforceable arrangements. If you’re operating on handshake deals or vague email chains, it can be hard to show the business is stable - and it can be hard to enforce payment if things go wrong.

Depending on your model, this might include:

• Customer terms (for services, subscriptions, or ongoing deliveries)
• Supplier agreements (especially where you rely on one key supplier)
• Contractor agreements (to protect IP and clarify ownership of work product)
• Clear payment terms and consequences for late payment

If you have staff, a proper Employment Contract helps clarify duties, confidentiality, and notice requirements - and reduces disruption risk if someone leaves at a critical time.

2) Protect Your Brand And Business Assets

A business can be “trading” but still not be a secure going concern if its key assets aren’t properly owned or protected.

Common issues we see include:

• the business name is used, but trade marks aren’t registered,
• the domain name is in a founder’s personal name rather than the business,
• software code or designs were built by contractors but IP ownership wasn’t clearly assigned,
• customer lists and pricing are treated as confidential, but there’s no confidentiality clause to support it.

Even if you don’t “need” all protections on day one, it’s worth having a plan - especially if you want to sell the business later or bring in investors.

3) Set Up Clean Company Governance (If You’re Operating Through A Company)

If you run a company, good governance helps you prove that the business is real, separable from its owners, and managed in an orderly way - which is important for buyers, investors, and sometimes banks.

This usually includes:

• a suitable Company Constitution (or reviewing/adjusting the one you already have),
• clear rules between founders (often through a shareholders agreement), and
• records of key decisions and approvals.

When things get stressful, governance documents are what help you make decisions without creating internal disputes that can threaten the ongoing operation of the business.

4) Manage Data And Privacy If You Collect Personal Information

Most small businesses collect some personal information - even if it’s just customer names, emails, delivery addresses, or online behavioural data.

Operationally, this matters because data problems can become “business continuity” problems (think: a complaint, a breach, or a platform account being suspended).

A clear Privacy Policy is a practical foundation for compliance and customer trust, particularly if you sell online or run marketing campaigns.

5) If You’re Buying A Business, Do Proper Legal Due Diligence

From a buyer’s perspective, the biggest risk is paying “going concern” price for something that can’t continue operating once you take over.

Due diligence typically includes reviewing (at minimum):

• the lease and whether it can be transferred,
• key supplier and customer contracts,
• employee arrangements,
• ownership of IP (brand, domain, content, software),
• any security interests over the assets (for example, under PPSR), and
• licences or permits that the business needs to trade.

This is also where the contract structure matters. Sometimes the right approach is an asset purchase; other times it’s a share sale. The best structure depends on the risk profile and what you actually need to acquire to operate.

What Legal Documents Help Support A “Going Concern” Sale Or Stable Business?

There’s no single “going concern” document you can download and forget about. In practice, being able to operate as a going concern (and demonstrate it to third parties) comes from having the right legal foundations in place.

Here are common documents that support stability, reduce disputes, and make a business easier to sell or invest in:

• Customer terms and conditions: sets expectations around scope, pricing, payment, cancellations, liability and disputes.
• Supplier agreement: helps lock in supply, pricing, delivery timeframes, and remedies if something goes wrong.
• Contractor agreement: clarifies deliverables, IP ownership, confidentiality, and payment terms when you engage freelancers.
• Employment contracts: supports continuity by setting clear obligations and notice periods (and helps reduce risk if disputes arise).
• Privacy policy and website terms: supports compliance and reduces platform and customer complaints risk, especially for eCommerce and SaaS businesses.
• Company constitution and shareholders agreement: helps prevent internal conflict that can destabilise a business when it’s under pressure or scaling.
• Business sale documents: where you’re buying/selling, the sale agreement and completion documents are what legally transfer the business so it can keep operating without interruption.

Not every business will need every document immediately. But if your goal is to grow sustainably (or sell later at a premium), putting these foundations in early can make a big difference.

Key Takeaways

• A going concern generally means a business is expected to keep operating into the foreseeable future, not shut down or materially scale back.
• For small businesses and startups, “going concern” matters most when you’re selling, buying, raising capital, or negotiating with landlords and lenders.
• A business may stop being a going concern quickly if a critical piece can’t be transferred (like a lease, key supplier arrangement, or IP ownership).
• Common warning signs include persistent cash flow issues, inability to pay debts on time, reliance on one key customer, or escalating creditor pressure.
• Strong legal foundations - including customer terms, supplier arrangements, employment contracts, privacy compliance, and clean governance - help your business stay stable and easier to sell.

If you’d like help setting up or protecting your business so it can operate confidently as a going concern (or if you’re buying/selling and want the paperwork done properly), reach out to Sprintlaw on 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.