Buying a Business in Queensland: Due Diligence Checklist and Red Flags

Thinking of buying that dream business? Your gut feeling might be a strong "yes," but it can’t spot hidden debts or a flawed lease agreement. Before risking your savings, you need to perform due diligence—think of it as the business equivalent of getting a professional inspection before you buy a house.

But where do you even begin? The business purchase process can feel overwhelming. To make it manageable, this due diligence checklist is organised into three simple parts, ensuring you investigate the money, the rules, and the day-to-day reality.

First, Financial Due Diligence answers the core question: Is this business as profitable as it seems? Next, Legal Due Diligence confirms you are allowed to run the business without inheriting costly legal problems or broken contracts.

Finally, Operational Due Diligence explores how everything actually works and whether you can realistically step in and run it. This structured approach is what to check before buying a business, turning a mountain of questions into a clear path forward.

The Financial Checklist: How to Verify the Seller's Numbers

When you buy a business, you're buying its financial performance. But how do you confirm the seller’s story about high sales and healthy profits? The key is to get your hands on the raw financial data and see if it all adds up. Your financial due diligence starts by acting as a detective, looking for clues in the numbers. Your accountant will do the deep analysis, but your job is to make sure they have the right documents to work with.

To start, you need to insist on a minimum set of paperwork. Don't proceed until the seller provides these essential files, as they form the foundation of any serious evaluation.

Your Minimum Financial Document Request List:

• At least 3 years of Profit & Loss Statements and Balance Sheets.

• At least 24 months of business bank account statements.

• Copies of recent Business Activity Statements (BAS) lodged with the ATO.

Once you have these, you can perform a simple but powerful cross-check. The Profit & Loss (P&L) statement shows the claimed sales and profit. The bank statements show the actual cash that was deposited. Do the numbers roughly align? If the P&L claims $20,000 in monthly sales but the bank statements only show $12,000 in deposits, you have a major red flag that needs a very good explanation.

Finally, look closely at the Balance Sheet. This document is a snapshot of what the business owns and, more importantly, what it owes. It will reveal any outstanding loans, equipment leases, or debts to suppliers. Buying a business only to inherit a mountain of hidden debt is a nightmare scenario that a careful look at the Balance Sheet can help you avoid.

The Legal Checklist: Are You Buying a Ticking Time Bomb?

Beyond the numbers, a business's legal paperwork can hide some of the biggest and most expensive traps. A healthy profit means nothing if you discover you don't have the legal right to operate the business where it stands. This check is about ensuring the foundations are solid before you even think about signing a business sale contract.

Arguably, the most critical document for any physical business is its commercial lease. This agreement dictates your right to occupy the premises. You need to focus on two key clauses: the Term, which is how long the current lease runs, and the Option, which is your right to renew it. A business with only six months left on its lease and no option to renew is a huge risk, as you could be forced to relocate and lose all the local goodwill you just paid for.

Finally, consider the specific permits required to operate. A Brisbane café needs a food licence from the council; a bar on the Gold Coast needs a liquor licence. Your lawyer must confirm these licences are current and, most importantly, can be transferred to you. Discovering a critical permit is non-transferable after the sale is a catastrophic oversight.

The Operational Checklist: How Does This Business Actually Run?

With the financial and legal paperwork looking solid, it’s time to see how the business performs day-to-day. A profitable business can still carry hidden operational risks. One of the most important questions to ask the seller of a business is for a list of their top ten customers. If you discover one or two clients account for most of the revenue, you’re looking at a major risk; should that big client leave after you take over, your income could disappear overnight.

This same principle applies to suppliers. A restaurant that relies on a single, exclusive provider for its key ingredients is vulnerable. If that supplier raises prices, changes their terms, or goes out of business, your operation could grind to a halt. A stable business has a healthy spread of both customers and suppliers, protecting it from any single point of failure.

Beyond goods and services, you must look at the team you might be inheriting. When a business is sold, you typically become responsible for existing staff and their accrued leave. Understanding the employee entitlements when a business is sold—like their stored-up holiday and long service leave—is crucial, as this represents a real cash liability you will have to pay out eventually.

Finally, you need to confirm exactly what physical and digital assets you are buying. This means creating a detailed list of everything from equipment and vehicles to the website domain, social media accounts, and customer database. Ensure the sale contract explicitly transfers ownership of all these items to you.

7 Common Red Flags That Scream "Walk Away"

You’ve done your checks, but sometimes your gut tells you something is off. Trust that feeling. Certain warning signs are so serious that they justify pausing or even walking away from a deal, no matter how good it looks on paper.

Here are some of the most common red flags when buying a small business:

• The seller refuses to provide clear financial documents.

• A large portion of sales is undocumented "cash" deals.

• The business depends entirely on the owner's personal skill or relationships.

• Key staff are planning to leave immediately after the sale.

• A major problem suddenly appears just before settlement.

• The seller is rushing you or discouraging you from getting professional advice.

• Their story about why they're selling keeps changing.

While a lack of paperwork is an obvious problem, one of the most dangerous risks is when the business is the owner. If all the customers are loyal to the seller personally, not the brand, that value can walk out the door with them. This is often called goodwill, and it’s a fragile asset. To protect your investment, your lawyer must negotiate a strong restraint of trade clause. Think of it as a promise from the seller that they won’t open a competing business nearby for a set period. Without it, you risk seeing your new customers follow the old owner down the street.

Your Final Step: Assembling Your Expert Team

You now have a practical roadmap for what might have once seemed like the intimidating jargon of 'due diligence'. You've moved from uncertainty to capability, armed with the right questions to ask about a company's finances, legal standing, and operational health. You know what to look for and which red flags demand attention.

This knowledge prepares you for your most critical role: you are not expected to be the expert accountant or lawyer. You are the project manager of your purchase. This guide is your tool to confidently lead your business acquisition team, ensuring every stone is unturned.

Your immediate next step is to assemble that team. Start by engaging a specialist business lawyer in Queensland and an accountant experienced in acquisitions. They are not a cost; they are your single best investment in securing your future success. You have the map—now go find your guides.

Ready to Make Your Business Dream a Reality?

Don't navigate the complexities of buying a business alone. Our experienced team of business lawyers at OMB Solicitors on the Gold Coast can help you with comprehensive due diligence, contract review, and negotiations. Protect your investment and secure your future.

Contact OMB Solicitors Today