The short answer, explained
Due diligence is the buyer testing whether the business is what the seller says it is. The buyer's accountant will test the profit figures; the buyer's lawyer will test whether contracts, the lease and licences can be transferred; and the buyer will look for anything that could cost money after completion, such as unpaid employee entitlements or a dispute.
Three people test the business before a buyer pays for it
The buyer's accountant
Tests the profit figures and the earnings a new owner can expect to maintain.
The buyer's lawyer
Tests whether contracts, the lease and licences can be transferred.
The buyer
Looks for anything that could cost money after completion, such as unpaid employee entitlements or a dispute.
A seller who has gathered and checked this material before going to market answers faster, looks more credible and gives the buyer fewer reasons to reduce the price or add protections to the contract. The business.gov.au guidance to buyers, cited on this page, is a useful view of what a prepared buyer will ask for.
What the buyer's accountant is trying to establish
The accountant is not only checking that numbers add up. They are trying to establish the earnings a new owner can expect to maintain, and to find anything that makes the reported figures unreliable. Typical lines of enquiry are:
- Do the profit and loss statements agree with lodged tax returns, and do sales agree with BAS?
- Which expenses are owner-related or one-off, and is each adjustment supported?
- Is revenue concentrated in a few customers, and is it contracted or repeat?
- Is working capital normal at the expected completion date?
- Are there liabilities not shown in the accounts, such as accrued leave or tax?
These are the same questions a valuer asks. Our guides on preparing financial information for a valuation and customer concentration cover two of the most common pressure points.
Request, reason and what to have ready
| Request | Why the buyer asks | What to have ready |
|---|---|---|
| Three to five years of financial statements | To establish trends and maintainable earnings | Signed or final statements for each year, consistently prepared |
| Tax returns and BAS for the same period | To check reported profit and sales against lodged figures | Lodged returns and BAS, with a reconciliation explaining any differences |
| Current-year management accounts | To see trading up to the sale | Monthly profit and loss and balance sheet to the latest month end |
| Earnings adjustments (add-backs) | To test whether stated profit is maintainable | A schedule of each adjustment with invoices, payslips or other evidence |
| Customer list and revenue by customer | To assess concentration and retention risk | Revenue by customer for each year, with contracts where they exist |
| Key customer and supplier contracts | To check terms, renewal dates and whether they can transfer | Signed copies, with assignment and change-of-control clauses identified |
| Premises lease | To confirm the buyer can occupy on acceptable terms | Lease, variations, options and any landlord consent requirements |
| Staff list and employment terms | To price entitlements and identify key people | Roles, pay, award or agreement coverage, start dates and accrued leave balances |
| Licences, permits and registrations | To confirm the business can legally operate after sale | Current copies, expiry dates and whether each is transferable |
| Assets and security interests | To confirm what is included and unencumbered | Asset register, finance agreements and a PPSR search |
| Disputes, claims and complaints | To identify costs that may arise after completion | A written summary of any current or threatened claims and their status |
| Tax and superannuation compliance | To identify unpaid amounts | Evidence that tax and super are lodged and paid to date |
Financials reconciled to tax returns and BAS
Due diligence can slow down when there is a gap between the management accounts used to market the business and the figures lodged with the ATO. Gaps can have legitimate causes: timing, cash versus accrual reporting, or year-end adjustments. They still need to be explained in writing before a buyer finds them.
Prepare a simple reconciliation for each year: profit in the financial statements, adjustments, taxable income in the return. Do the same for sales against BAS. Where an earnings adjustment is claimed, keep the evidence with it. Our earnings normalisation worksheet is a structured way to record those adjustments.
Explain every gap between the marketed figures and the lodged figures before a buyer finds it
Profit in the financial statements
The starting point of the reconciliation for each year.
Adjustments
Timing, cash versus accrual reporting, or year-end adjustments, each explained in writing.
Taxable income in the return
The figure lodged with the ATO. Do the same for sales against BAS.
Contracts, the lease and licences
The legal question is whether the business the buyer is paying for can actually pass to them. That depends on how the sale is structured.
Whether contracts, the lease and licences pass to the buyer depends on the sale structure
Is the sale of business assets or of shares?
A sale of business assets
Contracts, the lease and licences generally need to be assigned or reissued, often with the other party's consent
A sale of shares
The contracting entity does not change, but a change-of-control clause may give the other party a right to terminate or renegotiate
The business.gov.au guidance prompts buyers to check whether the landlord will agree to transfer the lease.
Read your key contracts and lease for these clauses before going to market. If a landlord, franchisor or major customer must consent, plan how and when to approach them, with your lawyer's advice.
Staff and entitlements
Buyers price employee obligations carefully. Under Fair Work rules, when there is a transfer of business the new employer must recognise an employee's service with the old employer for most entitlements, including sick and carer's leave and parental leave. For some entitlements, including redundancy and annual leave, a new employer that is not an associated entity can choose not to recognise prior service, and the old employer may then need to pay out amounts such as untaken annual leave or redundancy. A transfer of business also ends the employment with the old employer, so notice or payment in lieu must be dealt with.
Have an up-to-date staff list with accrued leave balances, award or agreement coverage and any long-service obligations. These figures affect both the price and the completion adjustments.
Disputes and contingent liabilities
Any current or threatened dispute, complaint to a regulator, warranty claim or unpaid supplier is something a buyer will want to know about and will usually want protection against through warranties, indemnities or a retention. A short written summary of each issue, its status and the likely cost is far better than a buyer finding it in correspondence late in the process.
Limitations
This page is general guidance on preparation. It is not legal, tax or employment advice. Due diligence scope depends on the size of the business, the industry, whether the sale is of assets or shares, and the buyer. Regulated industries such as healthcare, financial services, childcare and liquor have additional licensing requirements not covered here. The Fair Work position summarised above has further conditions and exceptions; check the Fair Work Ombudsman page and get employment advice for your situation.
Next steps
- Download the business valuation preparation pack and use it as your data-room checklist.
- Ask your accountant to reconcile each year's profit to the tax return and sales to BAS.
- Ask your lawyer to review the lease and key contracts for consent and change-of-control clauses.
- Consider an independent valuation before going to market; see valuing a business to sell. Oliver Group, the Valuo practice for restructures, tax and buyouts, prepares pre-sale valuations.
Questions
How many years of financial records will a buyer want?
Government guidance for buyers suggests reviewing the past three to five years of financials, including tax returns and BAS. Have at least that period ready, plus current-year management accounts.
Should I fix problems before going to market or disclose them?
Fix what can be fixed quickly and cheaply, such as missing contracts or unreconciled accounts. Disclose the rest early. An issue found late in due diligence can cost more in price or terms than the same issue disclosed at the start.
Do I have to give a buyer access to everything?
No. Sensitive information is usually released in stages under a confidentiality agreement, with the most commercially sensitive material held back until a buyer is committed. Your lawyer can advise on staging.
Sources
- Buy an existing business, business.gov.au. Due diligence step: buyers review three to five years of financials including tax returns and BAS, licences and permits, lease transfer, supplier agreements and debts on assets registered on the PPSR.
- Employee entitlements on a transfer of business, Fair Work Ombudsman. A new employer must recognise prior service for most entitlements; exceptions for redundancy, annual leave, long service leave, unfair dismissal and notice.
Cite or reuse this page
Valuo Insights team (2026). Preparing for a buyer's due diligence. Valuo. https://valuo.com.au/insights/preparing-for-buyer-due-diligence/ (updated 14 November 2026).
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General educational information, not financial, tax or legal advice. Worked examples are hypothetical and do not value a real business. A valuation depends on its purpose, the evidence and the agreed scope.