Tony Burke Announces Migration Changes: What Australia’s New Rules Mean
Tony Burke Announces Migration Changes: What Australia’s New Rules Mean
Buying an existing business can be a faster way to enter the market because you may be taking over an established customer base, employees, equipment, systems and revenue.
But buying a business also comes with risk.
A business may look profitable from the outside while carrying hidden debts, lease problems, employee liabilities, contract issues or intellectual property concerns.
That is why legal due diligence before buying a business in Australia is so important.
Due diligence helps you understand exactly what you are buying, identify possible problems and make a more informed decision before signing a contract.
What Is Due Diligence When Buying a Business?
Due diligence is the process of carefully checking a business before completing the purchase.
It may involve reviewing:
- Financial records
- Business contracts
- Assets and liabilities
- Commercial leases
- Employee arrangements
- Licences and permits
- Intellectual property
- Supplier and customer agreements
- Existing debts
- Legal disputes
The level of due diligence required will depend on the type, size and structure of the business.
Understand Exactly What You Are Buying
Before signing anything, be clear about what is included in the sale.
You may be buying business assets such as:
- Equipment
- Stock
- Business name
- Website
- Domain names
- Customer database
- Intellectual property
- Goodwill
- Existing contracts
In some transactions, you may instead be purchasing shares in the company that operates the business.
These structures are different and can create different legal, tax and commercial risks.
Make sure the sale agreement clearly states what is included and excluded from the transaction.
Check the Financial Records
Financial records help you understand whether the business is performing as the seller claims.
You may need to review:
- Profit and loss statements
- Balance sheets
- Tax returns
- Business Activity Statements
- Sales reports
- Cash flow records
- Accounts payable
- Accounts receivable
- Existing finance arrangements
Your accountant can help assess the financial position of the business.
Do not rely only on sales figures shown in an advertisement or information provided by a business broker.
Look for unusual income, unpaid debts, falling revenue or expenses that may affect the real value of the business.
Confirm the Seller and Business Details
You should confirm who legally owns and operates the business.
Depending on the transaction, this may involve checking:
- ABN
- ACN
- Registered business name
- Company status
- Directors
- Registered addresses
These checks help confirm that you are dealing with the correct legal entity.
They can also help identify issues that need further investigation before you proceed.
Review the Business Sale Contract
The sale contract is one of the most important documents when buying a business.
It should clearly cover matters such as:
- Purchase price
- Deposit
- Settlement date
- Assets included in the sale
- Stock valuation
- Employee arrangements
- Seller warranties
- Restraint of trade
- Lease transfer
- Intellectual property
- Customer deposits
- Adjustments
- Default provisions
- Termination rights
The contract should match what you have actually agreed with the seller.
Do not assume that verbal promises will automatically protect you.
Have the contract reviewed before signing.
Review the Commercial Lease
If the business operates from leased premises, the lease can have a major impact on the value of the business.
Check:
- Remaining lease term
- Options to renew
- Current rent
- Rent increases
- Outgoings
- Permitted use
- Repair obligations
- Make-good requirements
- Personal guarantees
- Assignment conditions
You should also confirm whether the landlord must approve the transfer of the lease.
Buying the business does not automatically mean you can continue operating from the same premises.
Check for Security Interests Over Assets
Some business assets may still be subject to finance.
This can include:
- Vehicles
- Machinery
- Equipment
- Other valuable business assets
A search of the Personal Property Securities Register (PPSR) may help identify registered security interests.
This is important because you do not want to pay for an asset and later discover that another party has a security interest over it.
The sale contract should deal with the release of relevant security interests before or at settlement.
Check Intellectual Property Ownership
For many businesses, intellectual property can be one of their most valuable assets.
This may include:
- Trade marks
- Logos
- Branding
- Website content
- Domain names
- Software
- Designs
- Copyright material
- Customer databases
Make sure the seller actually owns the intellectual property being sold.
For example, a logo may have been created by an external designer without clear ownership rights being transferred to the business.
Registered trade marks, domain names and digital assets should also be properly transferred as part of the sale.
Review Customer and Supplier Agreements
A business may rely heavily on important customers or suppliers.
Review major agreements and check:
- Contract term
- Pricing
- Renewal rights
- Termination rights
- Minimum purchase requirements
- Exclusivity
- Assignment restrictions
- Change-of-control clauses
Some contracts may end or require consent when the business is sold.
This can directly affect the value of the business.
Review Employee Arrangements
If employees will continue working after the sale, you need to understand their existing employment arrangements.
Check:
- Employment contracts
- Wages and salaries
- Annual leave
- Long service leave
- Superannuation
- Bonuses
- Commissions
- Awards
- Enterprise agreements
- Workplace disputes
Employee entitlements can become an important part of the sale negotiations.
The buyer and seller should clearly agree on how employee liabilities will be handled.
Check Licences and Permits
Some businesses require specific licences or permits to operate.
This may apply to businesses in areas such as:
- Hospitality
- Construction
- Transport
- Healthcare
- Liquor
- Childcare
- Professional services
Check whether these licences can be transferred to you.
In some cases, you may need to apply for new licences before taking over the business.
Do not assume that the seller's approvals will automatically continue after settlement.
Check for Legal Disputes
Ask whether the business is involved in any current or recent disputes.
These may involve:
- Customers
- Employees
- Suppliers
- Landlords
- Competitors
- Regulators
- Business partners
You should also find out whether any legal claims have been threatened.
Existing disputes can affect the value of the business and may create financial or legal risk after settlement.
Identify Existing Debts and Liabilities
Before buying a business, understand what debts or obligations are connected to it.
These may include:
- Supplier debts
- Equipment finance
- Customer refunds
- Product warranties
- Employee entitlements
- Unpaid taxes
- Customer deposits
- Lease obligations
The sale contract should clearly state which liabilities remain with the seller and which, if any, transfer to the buyer.
This is especially important when buying shares in a company.
Look at the Business Beyond the Financial Numbers
A business can look strong financially but still have serious commercial risks.
Ask questions such as:
- Why is the owner selling?
- Does the business depend heavily on the current owner?
- Is most of the revenue coming from one customer?
- Will key employees stay?
- Are supplier relationships secure?
- Is important equipment old or due for replacement?
- Is the business highly dependent on one location?
- Could customers leave after the owner changes?
These questions can help you understand whether the business can continue performing after the sale.
Include Appropriate Conditions in the Contract
In some cases, the purchase should only proceed if certain conditions are satisfied.
These may include:
- Finance approval
- Satisfactory due diligence
- Landlord consent
- Transfer of licences
- Assignment of key contracts
- Release of security interests
- Transfer of intellectual property
- Employee arrangements
These conditions should be clearly written into the contract.
Do not rely on informal understandings.
Common Red Flags When Buying a Business
Be cautious if you notice any of the following:
- Incomplete financial records
- Unclear ownership of assets
- Pressure to sign quickly
- Revenue that cannot be verified
- Important contracts that are only verbal
- A lease that is close to expiry
- Heavy reliance on one customer
- Assets subject to finance
- Missing employee records
- Non-transferable licences
- Unclear intellectual property ownership
- Undisclosed disputes or debts
A red flag does not always mean you should walk away.
But it should be properly investigated before you commit to the purchase.
Why Legal Due Diligence Matters
Buying a business is a major financial decision.
Once a contract becomes binding, it may be difficult to change the terms or recover losses caused by problems that could have been identified earlier.
Legal due diligence can help you:
- Understand what you are buying
- Identify hidden risks
- Review important contracts
- Negotiate better terms
- Protect your commercial interests
- Decide whether the purchase still makes sense
The aim is simple: know what you are buying before you sign.
Buying a Business in Melbourne?
Valence Legal assists businesses, investors and purchasers with the legal side of buying a business.
Our services may include:
- Business purchase due diligence
- Contract review
- Contract negotiation
- Commercial lease review
- Lease assignment
- Business agreements
- Intellectual property transfers
- Employee transition matters
- Settlement support
Speak With Valence Legal
If you are considering buying a business in Melbourne or elsewhere in Australia, getting legal advice before signing can help you identify issues while there is still time to deal with them.
Speak with Valence Legal before committing to your business purchase.