Quick answer
When financing a business purchase, due diligence protects both you and the lender. Verify sales and profit against BAS and bank records, check the lease and its transfer, confirm key staff, customers and suppliers, search the PPSR for securities over assets, check for tax debts, and review contracts and licences. Lenders rely on these findings to assess the deal, and gaps can delay or derail funding.
Key points
- Verify financial claims against BAS, tax returns and bank statements.
- The lease can make or break both the business and the loan.
- Search the PPSR and check for tax debts before settlement.
- Lenders will ask for much of the same evidence.
Checklist
- Financial statements and BAS reconciled
- Bank statements reviewed
- Lease terms and assignment confirmed
- Key customers and suppliers checked
- Staff entitlements understood
- PPSR search and tax position checked
- Licences and permits transferable
Buying an established business can be a faster path to income than starting from scratch. It can also be one of the most expensive mistakes an owner makes if the business turns out to be weaker than it looked. Due diligence is how you find out before settlement, and it doubles as the evidence a lender needs to fund the purchase. Done well, it protects your money, your loan and your future.
Verify the numbers
The seller’s financial statements are a starting point, not proof. Reconcile them against:
- BAS lodgements, which show sales reported to the ATO;
- tax returns;
- bank statements, which show actual deposits;
- point-of-sale or accounting system reports.
Look for consistency over several years, unusual add-backs and any dependence on the owner’s personal efforts. The business.gov.au guide to buying an existing business and its valuation guidance are useful references.
Check the lease
For many businesses, the lease is critical. Confirm the remaining term, options to renew, rent reviews, make-good obligations, permitted use and whether the landlord will consent to assignment. Lenders generally want the lease, including options, to run at least as long as the loan.
Customers, suppliers and staff
- Customers: is revenue spread across many, or concentrated in a few who might leave with the seller?
- Suppliers: will key supply agreements transfer on similar terms?
- Staff: which employees are staying, what are their entitlements and who is responsible for accrued leave?
Assets, securities and debts
| Check | Why |
|---|---|
| Asset list against what is on site | Confirms what you are buying |
| PPSR search | Identifies lenders with security over assets |
| Title searches (if property included) | Confirms ownership and encumbrances |
| Tax debts | Ensures the business is not inheriting ATO problems |
| Outstanding creditors | Clarifies what must be paid at settlement |
Search the PPSR for registrations against the seller’s business and assets, and make sure any are released at settlement.
Licences, permits and contracts
Check that licences, permits, accreditations and key contracts can transfer to you. Some are personal to the current owner and must be reapplied for, which takes time.
How lenders use your findings
Lenders financing acquisitions want verified earnings, a secure lease, a realistic plan and your contribution. Our business acquisition loans review explains how they structure deals. Presenting your due diligence findings with the application, including risks and how you will manage them, strengthens your case and often speeds approval.
Red flags
- Sales that do not match BAS or bank records.
- Reluctance to provide documents or allow inspection.
- A short lease with no option, or a landlord who will not consent.
- Heavy reliance on the owner or one customer.
- Recent changes in staff, suppliers or pricing that are not explained.
Professional help
An accountant and a solicitor experienced in business purchases are worth every dollar. They will spot issues you might miss and help structure the contract to protect you, including conditions that allow you to withdraw if finance or due diligence is not satisfactory.
Making finance a condition of the contract
Where possible, make the contract of sale subject to finance approval and satisfactory due diligence, with realistic deadlines. That protects your deposit if the loan or the checks do not go as planned. Discuss timing with your lender before signing so the deadlines are achievable.
An illustrative example
A made-up buyer of a regional café reconciles the seller’s figures against BAS and bank statements and finds sales a little lower than advertised but still solid. The lease has six years plus options, and the landlord consents. A PPSR search shows equipment finance over the coffee machine, which is paid out at settlement. The buyer renegotiates the price slightly, and the lender approves the loan on the verified figures.
The handover period
A well-planned handover protects the value you are paying for. Agree how long the seller will stay to introduce you to customers, suppliers and staff, and what happens if they leave early. Lenders often view a structured handover positively because it reduces the risk of customers drifting away after settlement. Put the arrangement in the contract rather than relying on goodwill.
After settlement
Once the business is yours, keep monitoring the numbers closely for the first few months and compare them with what due diligence suggested. If sales or margins differ materially, investigate quickly. Early action is easier than fixing a problem that has run for a year, and your lender will appreciate a heads-up if trading is below plan.
Financing a business purchase?
If you are buying a business and need finance, start the conversation early. Make one enquiry. There is no credit check when you first enquire, a real person reviews it and your details go to one lending partner rather than a list. Include the price, your contribution and any settlement deadline in your enquiry.
Frequently asked questions
What documents should I ask a seller for?
Financial statements and tax returns for several years, recent BAS, bank statements, the lease, key contracts, an asset list, staff details and entitlements, and any licences or permits.
How do lenders use due diligence?
Lenders assess the business's ability to repay from its verified earnings and check the risks you have identified. Thorough due diligence often speeds up approval.
Why does the lease matter so much?
Without a secure lease, a location-dependent business may lose its main asset. Lenders want the lease to run at least as long as the loan.
What is a PPSR search in a business purchase?
It checks whether lenders or others hold registered security interests over the business's assets, which must be released at settlement.
Should I get professional help?
Yes. An accountant and a solicitor experienced in business purchases are strongly recommended. Their fees are small relative to the risk.
What are red flags in a sale?
Sales that do not match BAS or bank records, reluctance to share documents, a short lease, heavy reliance on the owner or one customer, and unexplained debts.
Can vendor finance help?
It can reduce what you borrow and shows the seller's confidence, but terms need legal review.
How long does due diligence take?
It depends on the size and complexity of the business, but allow at least a few weeks for financial review, lease checks, searches and professional advice, and agree realistic deadlines in the contract.
Should the purchase price be adjusted if due diligence finds problems?
Often yes. Findings such as lower verified sales, needed repairs or lease issues are legitimate grounds to renegotiate price or terms, or to withdraw if the contract allows.
Sources and further reading
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