The Due Diligence Checklist Every Queensland Business Buyer Should Use

Business due diligence is the process most buyers underestimate and most sellers resent. Done properly, it is not adversarial — it is the mechanism that gives both parties confidence in a transaction that is otherwise built on representations and trust. Done poorly, it produces the post-settlement disputes and buyer's remorse that define the worst business purchase experiences.

This checklist covers the primary due diligence categories for a Queensland SME acquisition. It is not exhaustive — every business has its own specific risks — but it covers the areas where problems most commonly arise and where gaps in diligence most regularly translate into financial loss for the buyer.

Buyers should engage a Queensland-based accountant and commercial solicitor with SME transaction experience before committing to any business purchase. The Queensland Law Society maintains a directory of practitioners by area of expertise and region.

1. Financial Due Diligence

Financial verification is the foundation of every business purchase. The goal is to confirm that the earnings represented in the information memorandum or heads of agreement actually exist and are sustainable.

• Three years of financial statements: Profit and loss, balance sheets, and cash flow statements prepared by the business's accountant. Identify any year-on-year anomalies and request explanations in writing.
• BAS reconciliation: All Business Activity Statements lodged with the ATO for the past three years, reconciled against reported revenue. Discrepancies between BAS-reported sales and P&L revenue are a significant red flag.
• Tax returns: Company or individual tax returns for the same period. The ATO's industry benchmark data, published annually, provides a useful sanity check on whether margins and expenses are consistent with comparable businesses.
• Bank statements: Twelve months of primary business bank statements, reconciled against reported revenue. Cash businesses in particular require bank statement validation.
• Debtors ledger: Aged debtors analysis — the age profile of outstanding invoices. Significant overdue debt may not be recoverable and should be excluded or discounted from the purchase price.
• Current liabilities: Any liabilities that will transfer to the buyer — including loans, ATO payment arrangements, creditor balances, and deferred revenue obligations.
• SDE or EBITDA calculation verification: Independently verify the earnings multiple basis the seller has used, with add-backs reviewed line by line.

2. Lease and Property

For businesses operating from a fixed location — retail, hospitality, trades workshops, medical practices — lease terms are frequently the most critical non-financial element of due diligence. A business cannot be what it is without access to its location.

• Remaining lease term and options: How much time remains on the current lease? Are options available, and on what terms? A buyer assuming a lease with insufficient term will be operating with significant uncertainty.
• Assignment provisions: Does the lease permit assignment to a new owner? Most commercial leases require landlord consent. Confirm in writing that the landlord will consent before exchanging contracts. This is non-negotiable.
• Rent review mechanisms: Fixed increases, CPI-linked, or market review? Understand what rent will look like at the next review point.
• Outgoings obligations: What costs are the tenant's responsibility — rates, insurance, common area maintenance? These affect the real occupancy cost significantly in Queensland commercial tenancies.
• Make-good obligations: What is required at lease end? Significant make-good obligations can represent substantial hidden liability.

3. Staff and Human Resources

Employees are often among the most valuable assets in a business — and among the most significant liabilities if entitlements are not properly understood and planned for.

• Employment contracts and modern award coverage: Identify all employees, their classification, and the applicable modern award or enterprise agreement under the Fair Work Act 2009. Misclassification of employees as contractors is a material risk area.
• Leave entitlements: Confirm the current accrued leave liability — annual leave, long service leave, and personal leave. Under Queensland law, long service leave entitlements accrue after seven years. Determine whether these liabilities transfer to the buyer or are settled by the seller at settlement.
• Key person risk: Identify employees whose departure would materially impair the business. Are there retention arrangements in place? Has the buyer had an opportunity to meet key staff?
• Superannuation compliance: Confirm superannuation contributions are current and lodged with the ATO. Unpaid superannuation is a personal liability of the business operator and can transfer in complex ways.

4. Customer and Revenue Quality

Not all revenue is equal. The quality and concentration of a business's customer base is one of the most significant determinants of earnings sustainability — and therefore business value.

• Customer concentration analysis: Prepare a schedule of the top 10 customers by revenue. If any single customer represents more than 15–20% of total revenue, the buyer is acquiring a relationship risk that may not survive a change of ownership.
• Contract tenure: Are key customer relationships documented in written contracts, or informal? What are the notice provisions? Can contracts be assigned to a new owner?
• Churn history: What is the historical rate of customer retention? A business that replaces 40% of its customer base each year has structurally weaker earnings than its gross revenue figure suggests.
• Pipeline and forward orders: For project-based businesses, what confirmed forward work exists at the time of sale? How does this compare to historical patterns?

5. Regulatory Compliance and Licensing

Queensland businesses operating in regulated industries — construction, healthcare, food service, financial services, hospitality, labour hire, and many others — require specific licences, registrations, and compliance frameworks. These do not automatically transfer.

• Identify all required licences and registrations: Queensland licensing portal, ASIC, APRA, industry bodies, local council permits. Each must be verified as current and transferable.
• Work Health and Safety compliance: Under Queensland's Work Health and Safety Act 2011, the business must have an active WHS management system appropriate to its risk profile. Review any recent notifiable incidents, investigations, or WorkSafe Queensland correspondence.
• Environmental obligations: Queensland's Environmental Protection Act creates material obligations for certain business types — manufacturing, primary production, automotive, and others. Environmental compliance history should be reviewed.
• Outstanding regulatory matters: Any pending regulatory action, investigation, or compliance notice will transfer with the business. Confirm there are none outstanding in writing from the seller.

6. Intellectual Property and Systems

• IP ownership: Trademarks, domain names, website content, software, and proprietary systems — confirm ownership is with the business entity being sold, not the personal name of the owner.
• Software licences: Confirm that all critical business software licences can be transferred or re-established in the buyer's name. SaaS subscriptions particularly require review.
• Process documentation: A business with documented operational procedures is less dependent on the current owner's presence during transition. Assess the depth of internal documentation.

7. Insurance

• Confirm current policies (public liability, professional indemnity, business interruption, workers' compensation) are current and will cover the transition period.
• Obtain new insurance quotes in the buyer's name before settlement — don't assume coverage is available or affordable, particularly for businesses in cyclone-risk zones across Far North Queensland.

The Role of Your Advisers

Effective due diligence requires coordinated input from a commercial solicitor, an accountant, and in some cases a specialist (such as an environmental consultant or industrial relations specialist). The cost of this advice — typically $5,000 to $20,000 for a SME transaction — is immaterial relative to the value of the transaction and the cost of discovering problems after settlement.

Virtus Estates coordinates the due diligence process for both buyers and vendors, working within the LINK Business Brokers transaction framework. We facilitate structured access to information, manage vendor disclosure obligations, and maintain confidentiality protocols that protect both parties through the process. Contact us to discuss your specific acquisition or sale.