How long does due diligence take when buying a business?

For a small to mid-sized business, commonly two to six weeks from the date the seller provides access to the information. The contract should specify a due diligence period and give you a right to terminate or renegotiate if the results are unsatisfactory. Sellers who resist providing information are the ones who slow it down.

What is the difference between an asset sale and a share sale?

In an asset sale you buy identified assets such as plant, stock, goodwill and contracts, and generally leave the seller’s liabilities behind. In a share sale you buy the company itself, with its history, its contracts and its liabilities attached. Share sales require far more extensive due diligence for that reason.

Can you get out of a contract if due diligence uncovers a problem?

Only if the contract lets you. A properly drafted contract makes completion conditional on due diligence satisfactory to the buyer, and gives a right to terminate or to renegotiate the price within a set period. If you sign without that condition, an unpleasant discovery may leave you bound.

Do I inherit the employees when I buy a business?

It depends on the structure. In a share sale, employment continues unchanged because the employer entity has not changed. In an asset sale, employees are generally terminated by the seller and offered new employment by you, and the treatment of accrued leave and continuity of service must be dealt with in the contract.

Commercial

Seven areas of due diligence when buying a business

Published 17 November 2021 · Updated 17 November 2021

Why the results matter more than the searches

Your lawyers and accountants will run a set of due diligence searches as a standard part of a business purchase. The searches are the easy part. What matters is what you do when the results come back, and whether you know which answers should change your position on price, structure or whether to proceed at all.

Here are seven areas worth close attention.

1. Court actions

A business being involved in litigation is not, on its own, a concern. What matters is how many actions there are and what they are about.

If the business is involved in a lot of litigation, ask why. Is it a high risk industry where that is normal? Is the current owner unusually litigious? Is there a common theme running through the disputes that points at a systemic problem?

Then ask whether any action touches something critical. If the business depends on the exclusive right to produce a particular product, and there is a live dispute about whether it owns that right, that is not a background matter. It goes to the value of what you are buying.

2. Outstanding tax returns or payments

Unlodged returns, whether income tax or business activity statements, and lodged but unpaid amounts both warrant attention.

Depending on how the purchase is structured, you can become personally liable for some of these debts. That risk is much higher in a share sale than an asset sale, because you take the entity with its history attached.

There is a second problem. Unlodged or unpaid tax is a sign of a poorly run business, and it distorts the financials you have been given. A business that has not paid its tax shows inflated profit.

3. Unpaid employees and superannuation

Do the wages reconcile, and is superannuation being cleared at the correct intervals?

The reasoning is the same as for tax. If there are unpaid entitlements owing to employees you intend to keep, you can become liable for those amounts.

Even where the structure or the contract means you do not inherit the liability, you still have a business that is not performing as well as you were told, and a group of employees who start their relationship with you unhappy. Underpayment issues also attract regulator attention.

4. Financials that do not match what you were told

Brokers and agents make a lot of representations when selling a business, including financial statements assembled from information the owner provided.

So what do you do when due diligence produces materially different numbers?

Ask why. Was it an end of year adjustment between draft and final figures, or is there something more concerning behind the movement?

What counts as significant depends on the size of the business. If you are unsure, ask for both the explanation and the documents that support it. An explanation without evidence is not an answer.

5. Long aged debtor lists

Cash flow is what keeps a business alive, so you need to see that it actually gets paid for what it sells, and reliably.

That matters even more where you are acquiring the book debts as part of the purchase.

If the aged debtor report shows a lot of long outstanding amounts, consider three things:

Why are these still outstanding? Are they disputes waiting to happen?
What is the average collection time on ordinary debts, and have you built that into your own cash flow projections?
Do the old debts have any real value? If not, has the purchase price been adjusted so you can write them off without wearing the loss?

6. Large movements in revenue

Sale prices are often set as a multiple of EBITDA, being earnings before interest, tax, depreciation and amortisation, or some variant.

That creates an obvious incentive to sell immediately after a strong year. If the business landed one unusually large job in the past financial year, revenue looks excellent.

Is that normal? What did the preceding years look like, and how has the recent spike affected the multiple you are paying on?

Look for significant peaks and troughs, and satisfy yourself, with your accountant, that they have been properly accounted for in the valuation.

7. Unprotected intellectual property

If a business relies on its brand, a process or a particular product to generate revenue, what has it done to protect them?

Are there registered trade marks, designs or patents? Are key processes documented and protected by confidentiality obligations? Are employees and contractors under agreements that assign what they create to the business?

If not, work out what that exposes you to. Does the absence of protection undermine the value ascribed to those assets in the balance sheet? Is there a dispute already forming that you have not been told about?

Getting help with the results

Buying a business is complicated, and working through due diligence results is where most buyers either negotiate a better deal or discover they should walk.

Our commercial team can help at every stage, from the terms sheet through due diligence to completion.

Last reviewed 3 August 2026 by the TWC Lawyers team. Queensland penalty units and court fees are indexed on 1 July each year. Check current figures before you rely on them, or ask us.