Business due diligence
Business due diligence: know what you’re buying before you sign.
An independent accountant’s check of the numbers behind a franchise or small business purchase, so the price you pay reflects the profit the business can really keep making.
What is business due diligence?
Business due diligence is the investigation a buyer carries out before committing to purchase a business. Financial due diligence, the part an accountant does, tests whether the seller’s figures are accurate and sustainable: it reconciles the profit and loss to tax returns, BAS and bank statements, removes one-off and non-commercial items to find the true ongoing profit, identifies costs that are coming but haven’t shown up yet, and works out how much cash you’ll need from day one. Legal due diligence on the contract, lease and franchise agreement is done separately by a lawyer.
Why it’s needed
The asking price is built on the seller’s numbers.
Most small business prices are a multiple of the profit the seller reports. If that profit is overstated by even a modest amount, the overpayment is multiplied too. Due diligence is how you find out before the money changes hands.
Profit that isn’t what it seems
Owner or family labour that isn’t paid, personal expenses run through the business, or a one-off contract can all make the profit look better, or worse, than it will be for you.
Costs that haven’t arrived yet
Rent reviews, a refurbishment required by the franchise agreement, equipment near the end of its life or a wage increase that’s already locked in.
Records that don’t agree
When the profit and loss, BAS lodgements, POS reports and bank statements tell different stories, you need to know which one is right.
Cash you’ll need on day one
Stock, deposits, wages before sales come in, staff leave you may inherit and a buffer for a slower start, the funding gap many buyers underestimate.
Tax and structure
Which entity should buy, how the price is allocated, whether the sale can be GST-free as a going concern and what that means for your first year.
Leverage to negotiate
Documented findings give you a reasoned basis to renegotiate the price or terms, or the confidence to walk away.
Pricing
Essential Business Due Diligence
Every purchase is different, so we price each review to suit the business you’re buying.
Essential Business Due Diligence
From $2,000 + GST
Business due diligence starts from $2,000 + GST. Contact us for detailed pricing based on the business you’re looking at.
Illustrative example
How a $2,000 review changed a $420,000 decision.
Sam was buying an established café franchise. The asking price was $420,000, based on the seller’s reported annual profit of $150,000, a multiple of 2.8 times earnings. The figures looked solid and the store was busy.
The due diligence review found four things the headline profit didn’t show:
- A one-off contract. A catering contract worth about $14,000 a year in profit had ended and wouldn’t continue under a new owner.
- Unpaid labour. The seller’s partner worked around 25 hours a week without a wage. Replacing those hours would cost about $32,000 a year, including super.
- A rent review. The lease had a market rent review due in six months, expected to add about $11,000 a year.
- A required refurbishment. The franchise agreement required a store refresh within 18 months, quoted at around $55,000.
The sustainable profit was closer to $93,000, not $150,000. At the same 2.8 multiple, and allowing for the refurbishment, the business was worth nearer $205,000. Sam’s lawyer and broker used the report to reopen negotiations, and the parties settled at $300,000.
| Item | Amount |
|---|---|
| Seller’s reported annual profit | $150,000 |
| Less: catering contract that ended | −$14,000 |
| Less: cost to replace unpaid labour | −$32,000 |
| Less: rent increase at review | −$11,000 |
| Adjusted annual profit | $93,000 |
| Value at 2.8× adjusted profit | $260,400 |
| Less: required refurbishment | −$55,000 |
| Indicative value | ≈ $205,000 |
| Asking price → agreed price | $420,000 → $300,000 |
| Saving on purchase price | $120,000 |
| Cost of the review | $2,000 + GST |
This is a hypothetical, simplified example created to show how due diligence findings can affect a purchase price. Sam is not a real client, figures are rounded, and every business and negotiation is different. Earnings multiples vary widely by industry, size and risk. This example is general information, not financial advice.
How it works
From first call to a clear answer.
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Scope and fixed fee
A short call about the business, the price and your deadline. We confirm the scope and fixed fee in writing.
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Documents
We send a checklist of the records to request from the seller or franchisor and review what comes back, including what’s missing.
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Analysis and questions
We reconcile the figures, adjust the earnings, model your day-one cash needs and send you questions to put to the seller.
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Report and walkthrough
A plain-English written summary of what we found, what it means for the price and what to do next, and a meeting to go through it.
What to ask the seller for
Ask for these early. A seller who is slow or unwilling to provide them is telling you something.
- Financial statements and tax returns for the last two to three years
- BAS lodgements and the ATO integrated client account for the same period
- Bank statements, POS or sales reports and the year-to-date profit and loss
- Payroll summaries, staff list with pay rates, award classifications and accrued leave
- The lease, any rent review schedule and outgoings
- For a franchise: the disclosure document, franchise agreement, royalty and levy statements and any refurbishment requirements
- An asset and equipment list with ages and any finance owing
Buying a franchise? Read our financial due diligence checklist for franchise buyers and the guide to working capital for a new franchise.
Due diligence FAQs
Business due diligence questions
How much does business due diligence cost?
Business due diligence starts from $2,000 + GST. The final price depends on the business you’re buying, so contact us for detailed pricing.
How long does due diligence take?
It depends mostly on how quickly the seller provides complete records. Once we have them, we work to your deadline. Tell us when your offer or cooling-off period ends when you first get in touch.
When should I get due diligence done?
Before you sign an unconditional contract or pay a non-refundable deposit. Many buyers make their offer subject to satisfactory due diligence; your lawyer can advise on the wording.
What’s the difference between financial and legal due diligence?
Financial due diligence tests the numbers: profit, cash flow, tax and the costs ahead. Legal due diligence tests the documents: the sale contract, lease, franchise agreement, licences and liabilities. You generally need both, and we can work alongside your lawyer.
Do I need due diligence if the franchisor has given me figures?
Yes. Network averages and franchisor projections are a starting point, not a forecast for your site. For an existing store, the seller’s own records are what you are paying for, and they should be checked independently.
Can you review a business that isn’t a franchise?
Yes. The same review applies to independent small businesses, such as cafés, retail, trades, services and more. The franchise-specific checks are simply replaced with a closer look at supplier, customer and key-person risk.
What happens if the review finds problems?
Most reviews find something. The report explains which issues affect the price, which can be handled in the contract and which are deal-breakers, so you can renegotiate, add conditions or walk away with confidence.
Keep exploring
Related reading and services
Next step
Let’s make your numbers work harder.
Tell us where you’re at (first store, next store or a whole network) and we’ll start with the right conversation.