How To Do Business Due Diligence in Australia

Whether you’re buying a business, onboarding a key supplier, investing in a startup or preparing for your own sale, business due diligence is how you reduce risk and make confident decisions.

Done well, it helps you verify the facts, uncover hidden issues and negotiate terms that protect your business.

In this guide, we’ll walk through what due diligence actually involves for Australian small businesses, when to do it, a step-by-step checklist, key legal areas to review, common red flags and the core documents you’ll want to have ready. We’ll keep it practical, so you can tackle the process with clarity and avoid costly surprises.

What Is Business Due Diligence?

Business due diligence is a structured review of a business (or a major deal) to test what you’re being told against documents, data and legal requirements.

At its core, it answers two questions:

• What are we really buying, agreeing to or relying on?
• What are the risks, and how can we manage them in the contract or walk away?

For small businesses in Australia, due diligence commonly applies when you:

• Buy a business (assets or shares) or invest in a company
• Enter a long‑term supply, distribution or franchise arrangement
• Lease a commercial premises
• Partner, merge or form a joint venture
• Sell your own business and prepare for buyer reviews

It’s not just “ticking boxes”. It’s a targeted investigation so you can make decisions based on facts, not assumptions.

When Should You Do Due Diligence?

Start early-ideally after a non‑binding term sheet or heads of agreement, but before you sign the final contract (or pay a substantial deposit). This timing lets you negotiate warranties, price adjustments and risk allocation based on what you find.

Common triggers include:

• Buying a business: Begin after agreeing commercial terms, and complete before signing a Business Sale Agreement or Share Sale Agreement.
• Taking a lease: Review the landlord’s title, permitted use, incentives and outgoings before you commit to a long‑term lease.
• Major supplier/customer deals: If a single contract will make or break your business, verify the other party’s capacity, IP ownership and compliance record first.
• Investment rounds: Investors perform due diligence on your business; founders should also check investors’ track records and expectations.

If you’re the seller, do “vendor due diligence” upfront. Fixing issues (like missing contracts or unregistered IP) before buyers look will speed things up and often improve valuation.

Step‑By‑Step Due Diligence Checklist For Small Businesses

Every deal is different, but the process typically follows these steps:

1) Define Your Scope And Priorities

List the key things that matter to your decision: revenue stability, customer contracts, licences, brand/IP, lease terms, staff obligations, debt and disputes. Your scope should match the size of the deal and your risk appetite.

2) Get The Right Access And Protections

Sign a confidentiality deed or an Non‑Disclosure Agreement so information can be shared safely. Set up a data room or structured document list.

3) Request Documents And Data

Ask for what you need to verify claims. Use a clear, itemised list (financials, contracts, licences, HR records, IP, leases, insurance, litigation, tax, PPSR, policies and systems). Prioritise essentials first, then drill down based on what you find.

4) Review, Test And Ask Questions

Read the documents, cross‑check numbers, sample test (e.g. review the top 10 customer contracts), and ask follow‑up questions. If something is missing or unclear, chase it-gaps can be as revealing as the documents you do receive.

5) Assess Risks And Value

Map each issue to its impact (financial, legal, operational, reputational) and likelihood. Decide whether to accept, mitigate (e.g. through warranties, indemnities, price adjustments) or walk away. Keep a simple risk register so your negotiation is focused.

6) Reflect Findings In The Contract

Translate what you’ve learned into deal terms-price, completion conditions, seller warranties, restraints, earn‑outs, retention amounts, and post‑completion obligations. A tailored Business Sale Agreement or Share Sale Agreement should allocate risk clearly based on your findings.

7) Plan Post‑Completion Integration

Create a 90‑day plan for transferring contracts, updating licences, onboarding staff, migrating systems, and notifying customers and suppliers. The goal is a smooth handover with minimal business disruption.

Key Legal Areas To Review In Due Diligence

Legal due diligence focuses on the rights, obligations and risks that sit behind the business. These are the core areas most Australian small businesses should review.

Structure, Ownership And Corporate Records

• Confirm the seller’s legal structure (sole trader, partnership, company) and who actually owns the assets or shares.
• Check ASIC records, constitutions and any shareholder documents (e.g. options, convertible notes). If you’re partnering with co‑founders, align expectations early in a Shareholders Agreement.

Financial Information

• Review at least two to three years of financial statements and BAS. Look for revenue concentration, unusual adjustments, or one‑off items that won’t continue under your ownership.
• Validate key drivers (e.g. top customers) with supporting contracts and payment history.

Material Contracts

• Customer and supplier agreements: Check term, termination rights, assignment/consent requirements and any change‑of‑control clauses.
• Warranties/indemnities the business has given to others-these can become your risk after completion.
• Are terms consistent with the Australian Consumer Law (ACL) and unfair contract terms rules?

Legal Compliance And Consumer Law

• Australian Consumer Law (ACL): Ensure advertising, refunds, warranties and product claims comply. Non‑compliance can mean fines, refunds and reputational damage.
• Licences and permits: Industry and local council permits must be current and transferable.
• Disputes and claims: Search for threatened or actual litigation, regulatory issues and historical complaints.

Intellectual Property (IP)

• Who owns the brand, logo, software, content and designs? Get evidence of assignment from founders, employees and contractors.
• Check trade marks and domain names. Consider locking in protection by applying to register your trade mark.
• Look for third‑party licences-are they transferable? Are there open‑source obligations in software?

Privacy And Data Protection

• Review how personal information is collected, stored and used. Ensure there’s a compliant Privacy Policy and internal processes that match it.
• Ask about data breaches, customer consent mechanisms and deletion/retention practices.

Employment And Contractors

• Confirm employment status and entitlements (leave, superannuation, award coverage, long service leave). Ensure written agreements exist for all staff-use up‑to‑date Employment Contracts for permanent staff and clear contractor agreements where appropriate.
• Check policies (workplace health and safety, discrimination, confidentiality) and any ongoing disputes or claims.

Leases And Property

• Review the commercial lease: rent, outgoings, incentives, options, make‑good obligations, assignment requirements and where responsibility for repairs sits.
• Consider a targeted Commercial Lease Review so you understand your long‑term obligations before you commit.

Assets, PPSR And Title

• Validate ownership of key assets (equipment, vehicles, stock). Check the Personal Property Securities Register (PPSR) for security interests that must be released at completion.
• For financed assets, plan for payout figures and releases on completion.

Insurance

• Check current policies (public liability, product liability, professional indemnity, cyber) and claims history. Confirm coverage will continue or be replicated post‑completion.

Buying A Business? Extra Checks For Asset Sale Vs Share Sale

The due diligence focus shifts slightly depending on whether you buy the business assets or the company’s shares.

Asset Sale

• You buy selected assets (e.g. IP, equipment, stock, customer contracts) and leave behind unwanted liabilities.
• Key checks: Assignability of contracts and leases, consents from landlords and key customers, transfer of licences and IP, clean title to assets, and PPSR releases.

Share Sale

• You buy the shares in the company, which means you inherit all assets and liabilities (known and unknown).
• Key checks: Deeper dive into liabilities (tax, employee entitlements, historical claims), compliance history, company records and related‑party arrangements.

In both cases, reflect risks in your contract. This is where a purpose‑built due diligence and deal suite can help-our Legal Due Diligence Package and Business Purchase Package are designed to guide small businesses through the process and negotiate terms that protect you.

Common Red Flags (And How To Respond)

Spotting risks early lets you either fix them or renegotiate. Here are issues that often surface-and practical responses.

• Revenue Concentration: One or two customers drive most sales. Response: Seek retention/earn‑out tied to those customers staying, or a price adjustment.
• No Written Customer Contracts: Verbal arrangements only. Response: Require key customers to sign before completion or include warranties and a price holdback.
• Unregistered IP Or Brand Conflicts: Trademarks not registered; similar brands exist. Response: Register critical marks and include warranties/indemnities for IP infringement risk.
• Leases With Onerous Terms: Big make‑good, steep rent increases, limited assignment rights. Response: Negotiate amendments, incentives or walk away if the economics don’t work.
• Non‑Compliant Employment Practices: Award underpayments or missing super. Response: Factor remediation costs into price, require seller to fix pre‑completion, and document responsibility in the sale agreement.
• Unresolved Disputes Or Regulatory Issues: Pending litigation or ACCC/ASIC matters. Response: Increase diligence scope, negotiate indemnities/escrows, or reconsider the deal.
• Security Interests On Assets: PPSR registrations that won’t be released at completion. Response: Make release a condition precedent with clear payout mechanics.

What Documents Should You Have Ready?

Whether you’re buying, selling or entering a significant partnership, strong, tailored documents help you run due diligence efficiently and protect your position.

• Heads Of Agreement / Term Sheet: Outlines key commercial terms (non‑binding) to frame the deal and your due diligence period.
• Confidentiality Deed / NDA: Enables safe information sharing and protects sensitive business information.
• Sale Agreement: A tailored Business Sale Agreement (asset deal) or Share Sale Agreement (share deal) that allocates risk with warranties, indemnities, restraints and completion mechanics.
• IP Assignments And Trade Mark Filings: Ensure clear ownership and consider filing to register your trade mark for brand protection.
• Commercial Lease Documents: Heads of agreement, disclosure statements and a legal lease review so there are no surprises in rent, options and make‑good.
• Employment Agreements And Policies: Current Employment Contracts, contractor agreements and core policies to evidence compliance and support post‑completion operations.
• Privacy And Data Documents: A compliant Privacy Policy, security procedures and any data processing agreements.

You won’t need every document for every deal, but having the right ones-tailored to your situation-makes due diligence smoother and your negotiation stronger.

Practical Tips To Streamline Your Due Diligence

• Match Effort To Risk: A micro‑acquisition won’t need the same depth as buying a multi‑site operation. Focus where the value and risks sit.
• Use A Living Checklist: Keep a shared list of documents requested/received, open questions, and issues to reflect in the contract. It keeps your team aligned.
• Ask For Originals (Or Executed Copies): Drafts and unsigned templates don’t give you enforceable rights.
• Look For Patterns: Repeated customer complaints, consistent late rent, or frequent staff turnover can signal deeper problems.
• Plan For Day 1: While you review, think about transition: system logins, payment processing, supplier orders, and communications to customers and staff.
• Get Targeted Legal Help: Even if you DIY the initial review, it’s wise to get a lawyer to scan high‑impact items (leases, sale agreements, IP, employment and privacy).

Key Takeaways

• Business due diligence helps you verify facts, uncover risks and negotiate better terms before you commit to a deal.
• Start after agreeing commercial terms but before signing final documents, so findings can shape the contract and price.
• Focus on legal foundations: contracts, leases, licences, ASIC records, IP ownership, employment compliance, privacy and PPSR.
• Red flags like revenue concentration, missing contracts, unregistered IP or underpayments are manageable if you identify them early and reflect them in the deal terms.
• Have the right documents ready-NDAs, sale agreements, lease reviews, employment and privacy documents-to keep the process efficient and protect your position.
• Targeted legal support can save time, reduce risk and improve outcomes, especially for leases, IP, employment, privacy and the sale agreement itself.

If you’d like a consultation on business due diligence for your next deal, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.