What financial due diligence actually checks
A set of financial statements tells you what the seller's accountant has reported. It does not tell you whether revenue is recurring or lumpy, whether profit relies on an owner working seventy hours a week, or whether a big customer is about to leave.
Our due diligence starts with the reported numbers and works back to the evidence: bank statements, BAS lodgements, payroll records, customer and supplier data, contracts and the general ledger. Where the story and the evidence disagree, that is where the price conversation begins.
The numbers we care about most are the ones a buyer will live with: sustainable profit after a market salary for whoever runs the business, the cash needed to keep it trading and the liabilities that arrive with it. Everything else is context.
- Quality and sustainability of revenue
- Normalised earnings after owner and related-party adjustments
- Working capital needs and what should transfer at settlement
- Debt, leases, commitments and contingent liabilities
- Tax compliance: income tax, GST, PAYG withholding and super
- Payroll and award compliance exposure
- Customer and supplier concentration
Tax due diligence on a business purchase
If you buy shares in a company, you buy its tax history too. Unlodged returns, incorrect GST treatment, unpaid super, misclassified contractors and aggressive deductions all become your problem after settlement.
We review lodgement history, reconcile BAS to the accounts, check superannuation and PAYG withholding, test contractor arrangements and look for anything the ATO might take an interest in. Findings feed into the price, the warranties in the contract or the decision to buy assets instead of shares.
Payroll deserves its own mention. Underpaid wages, unpaid superannuation and contractors who are really employees are common findings in SME due diligence, and the back-pay exposure can run for years. We check awards, classifications and super payments as part of every review.
How our due diligence process works
We scope the work to the deal. A small asset purchase needs a sharp, focused review. A multi-site share acquisition needs a deeper look across entities and years. Either way, we agree the scope and a fixed fee up front.
Then we issue an information request, work through the data room, ask the seller's accountant the awkward questions and prepare a report that explains what we found, what it means and what we recommend. Most engagements run two to four weeks depending on how quickly the seller responds.
Where the seller's records are poor, we say so. Missing information is a finding in itself. It tells you something about how the business has been run and what you will inherit on day one.
- Scope and fee agreed before we start
- Information request issued to the seller
- Analysis of financials, tax, payroll and contracts
- Clear written findings with red, amber and green flags
- Price, structure and contract recommendations
- Support through renegotiation and settlement
Vendor due diligence for sellers
Sellers benefit from due diligence too. Running the review on your own business before going to market lets you fix problems, explain anomalies and present buyers with a clean, consistent set of numbers.
It also speeds up the sale. Buyers who receive a well-organised data room and an honest summary of the business ask fewer questions, trust the numbers more and are less likely to chip the price at the last minute.
What happens after due diligence
Due diligence rarely ends in a simple yes or no. More often it produces a shorter list of real issues and a clearer picture of what the business is worth. From there the price, the payment terms, the working capital adjustment and the contract warranties can all be negotiated with evidence behind them.
Sometimes the right answer is to walk away. That is not a wasted fee. It is the cheapest bad deal you will ever avoid. Once a purchase proceeds, our team can handle the structure, the funding model and the ongoing accounting so day one of ownership runs smoothly.
Our founder has bought and integrated several accounting firms, so the advice on what to do after settlement comes from practice rather than theory.
Questions we get asked
What is the difference between financial and legal due diligence?
Legal due diligence, run by your lawyer, covers ownership, contracts, leases, licences, litigation and title to assets. Financial due diligence, run by us, covers whether the numbers are accurate, whether the profit is sustainable and what tax and payroll exposures exist. A good acquisition needs both, and the two teams share findings.
How long does due diligence take for a small business?
Typically two to four weeks for an SME, depending on the size of the business, the quality of its records and how quickly the seller provides information. Complex share acquisitions across several entities take longer. We agree a timeline up front and flag any delays as they happen.
What documents are needed for financial due diligence?
At minimum, several years of financial statements and tax returns, BAS lodgements, bank statements, payroll reports, aged debtors and creditors, major customer and supplier contracts, leases, loan agreements and management accounts for the current year. We issue a tailored request list once we know the business.
Can due diligence lower the purchase price?
Often, yes. If earnings are lower than claimed once normalised, if working capital is short or if tax exposures exist, those findings generally justify a price adjustment, a retention, or warranties in the contract. Sometimes the findings confirm the price, which is also useful because you can proceed with confidence.
Do I need due diligence for a small purchase?
Scale the work to the deal, but do not skip it. Even modest purchases can hide unpaid super, unlodged BAS or revenue that leaves with the owner. A focused review of the key numbers and tax compliance usually costs a fraction of the purchase price and prevents the most common mistakes.
