Buying a Business Checklist: From Initial Review to Settlement

Key Takeaways

Sign a confidentiality agreement and read the information memorandum before meeting the owner.
Have a solicitor confirm your contractual protections, due diligence rights and any applicable cooling-off rules before committing.
Cross-check the profit and loss against BAS lodgements and tax returns, and discount any income the seller cannot prove.
The lease matters as much as the trading figures. Check term, options, rent reviews and landlord consent.
Food business licences do not transfer and a liquor licence transfer needs approval, so both belong in the settlement timeline.

Buying an established business gives you trading history to assess. Review the earnings, assets, lease and operating obligations carefully so you understand what will transfer and what you will need to provide.

This buying a business checklist covers the main stages from enquiry to handover. Gold Coast business brokers can coordinate the process alongside your independent advisers.

Initial Review and Enquiry

Most businesses are sold confidentially, so expect to sign a confidentiality agreement before you receive the business name or financials.

You should then receive an information memorandum covering trading history, staff, lease and asking price. Read it critically and build your list of questions from it. Brokers usually ask for proof of funds before a meeting, so buyers tend to have these in place first:

Confidentiality agreement signed and information memorandum read.
Proof of funds or finance pre-approval in hand.
Budget confirmed, including working capital and stock.
Inspections arranged through the broker at suitable times, without disrupting staff or breaching confidentiality.
Accountant and solicitor briefed and available for the due diligence period.

Questions to Ask the Owner

Use the owner meeting to understand how the business operates and identify matters to verify in the records:

Why are you selling, and what is your timeframe?
How many hours do you work each week, and which tasks only you can do?
Who are your top customers, and what share of revenue do they represent?
Which staff are critical, and do they know the business is for sale?
How long is left on the lease, and has the landlord been approached?
What has changed in the last 12 months, in trading, suppliers or competition?

Check the work you will need to perform or replace with paid staff. That affects both your income and the price you can support.

Due Diligence Explained

Due diligence means verifying the commercial, financial and legal position before becoming unconditionally committed. Some checks begin before an offer, while others occur within a negotiated contract period. Do not assume you can withdraw: have a solicitor explain the conditions and any applicable statutory rights, including those relevant to franchises.

You and your advisers lead the assessment, with information supplied by the seller and broker. Negotiate enough time for the business and approvals involved. Documents commonly requested include:

Profit and loss and balance sheets for the last three financial years plus year-to-date.
Business Activity Statement (BAS) lodgements and business tax returns for the same period.
Current lease and any correspondence with the landlord.
Employee list with roles, start dates, pay rates and leave balances.
Plant and equipment list with ownership and finance details.
Supplier and customer contracts, and the franchise agreement if relevant.
Licences, permits, council approvals and insurance policies with claims history.

Requirements vary with the type of business, so this list is a general guide.

Reviewing the Financials

Ask your accountant to reconcile the financial statements, BAS, tax returns and bank records, allowing for GST, timing differences and accounting treatment. Investigate material differences. Key areas include:

Revenue and Expense Trends

Three-year trends usually give a truer picture than the latest year alone. A sharp rise in revenue or drop in expenses just before listing deserves scrutiny, since it may reflect deferred costs or one-off sales.

Add-Backs and Normalised Profit

Understand the earnings measure being used. Owner’s earnings and EBITDA are not interchangeable. Adjustments may increase or decrease reported profit and should be supported by records. Review:

Owner remuneration and unpaid family work, adjusted for the realistic cost of the roles required.
Personal expenses run through the business.
Genuine non-recurring expenses, excluding costs that will continue or amounts not expensed in the profit figure.
Rent paid to a related party at a non-market rate.
Interest and depreciation only where consistent with the earnings measure, without adding them back twice.

Include a realistic management wage when assessing profit after management costs. If wages or rent are below market, the adjustment may reduce earnings.

Cash Businesses

Cafes, takeaways and small retailers still handle cash, and some sellers hint at undeclared income to justify the price. Treat that as a warning, not an opportunity. Undeclared income cannot be financed, verified or relied on.

Use point-of-sale reports, merchant statements, bank deposits and relevant purchasing records to investigate trading. Purchasing records can support a check, but are not a substitute for verified sales.

Stock, Plant and Equipment

Most sale prices exclude stock. It is usually purchased separately as stock at valuation (SAV), counted at cost on or just before settlement, often by an independent stocktaker. Agree an estimate and a cap in the contract. Plant and equipment is usually included in the price, so confirm what is there and who owns it. The checks that matter most are:

Itemised equipment list in the contract, matched on inspection.
Age, condition and service history of major items such as coffee machines, cold rooms or gym equipment.
Equipment under finance, and whether it transfers or must be paid out.
Personal Property Securities Register (PPSR) search for registered security interests to be released at settlement.
Stock that is damaged, expired or obsolete, excluded from the SAV count.

Lease Considerations

For a premises-dependent business, the lease can materially affect value and finance. Ask your solicitor to review the full lease, including any short remaining term or uncertain renewal rights.

When comparing Gold Coast businesses for sale, review these lease points:

Remaining term plus option periods, and the notice dates to exercise them.
Rent, outgoings and how rent reviews work (Consumer Price Index, fixed increase or market review).
Permitted use, trading hours and any demolition clauses.
Landlord consent to assignment, a standard contract condition that can take several weeks.
Make-good obligations and the bank guarantee required from you as the new tenant.
Disclosure obligations under the Retail Shop Leases Act 1994 (Qld) if the premises are a retail shop.

Staff and Employment Obligations

A sale can trigger transfer-of-business rules. The treatment of prior service, leave, notice and other entitlements depends on the circumstances and the applicable law. Obtain employment advice rather than assuming all balances can be paid out or transferred in the same way. Confirm:

Employee list with role, employment type, award, start date and pay rate.
Accrued annual leave, personal leave and long service leave balances.
How each entitlement will be handled, including any required seller payment, recognition of service and agreed settlement adjustment.
Employment contracts, awards and compliance, checked with an appropriately qualified employment adviser.
Key staff retention, including whether a conversation before settlement is possible.

Contract and Settlement Stages

Once terms are agreed, the purchase moves from paperwork to handover:

Offer and Contract

Have your solicitor review proposed terms before you sign an offer, heads of agreement or contract. The name of a document does not establish whether it is binding. Confirm:

Purchase price, with stock at valuation stated separately and capped.
Deposit amount, stakeholder arrangements and the circumstances in which it may be refunded or forfeited.
Conditions such as finance, due diligence, landlord consent and licence or franchise transfer.
Agreed training and handover obligations, including duration and who will deliver them.
Restraint of trade on the seller for a set period and radius.
Included and excluded assets, business name, phone numbers and domains.

Settlement and Handover

Your advisers should confirm settlement requirements and adjustments under the contract. The checklist may include:

Stocktake completed and SAV figure agreed.
Landlord consent received and the lease assignment or new lease signed.
Liquor licence transfer and any interim authority addressed with the relevant regulator and solicitor before the buyer begins trading.
New food business licence issued by council in your name, since food licences do not transfer on a sale.
Equipment finance paid out and PPSR releases confirmed.
Utilities, payment terminal, insurance and supplier accounts in your name.
Keys, logins and customer records handed over and training schedule confirmed.

Timeframes and requirements vary by business, council and landlord, so this list is a general guide.

Complete the Checks

Record outstanding questions and resolve material issues within the contractual deadlines. Agree any changes in writing through your advisers before proceeding.

When you find a business worth assessing, the team at Bond Business Brokers can take you through the next steps from enquiry to settlement.

Common Questions

Can I withdraw if the checks reveal a problem?

Your rights depend on the contract and any applicable law. Ask your solicitor about the condition wording, evidence, notice requirements and deadlines before signing.

Is finance pre-approval enough?

Pre-approval is not necessarily approval for the particular business. Confirm the lender’s conditions, security requirements and remaining assessment before becoming unconditionally committed.

How should I assess owner-operated earnings?

Separate the return for working in the business from the return on ownership. Include realistic staffing and management costs and use the same earnings basis when comparing opportunities.

This article provides general information only. Obtain advice from appropriately qualified advisers about your circumstances before entering into a transaction or relying on tax, legal or regulatory information.

Source:

Liquor licence transfer