Buying a Business in Victoria: A Due Diligence Checklist

1. Financial records

• Profit and loss statements and balance sheets for at least the last three years.
• Tax returns and BAS statements to verify the figures.
• Trading figures for the current year, and an explanation of any seasonal changes or one-off items.
• Details of the seller’s wages or drawings, so you know the true profit available to an owner.
• Major customers and suppliers. If the business relies on a small number of them, consider what happens if they leave.

2. The lease

For many businesses, the premises are critical. Check:

• the remaining term and any options to renew;
• the current rent, outgoings and how rent reviews work;
• permitted use, and whether you can run the business the way you plan to;
• make-good and demolition clauses; and
• the landlord’s consent to assign the lease to you, including any guarantees or bank guarantee the landlord will require.

Retail premises leases in Victoria are covered by the Retail Leases Act 2003 (Vic), which gives tenants certain protections and requires disclosure.

3. Assets, stock and security interests

• Get a list of plant and equipment included in the sale, and check its condition.
• Agree how stock will be counted and valued at settlement.
• Search the Personal Property Securities Register (PPSR) for any security interests over the assets. They should be released at or before settlement.
• Check whether any equipment is leased or financed rather than owned.

4. Employees

• Find out who will transfer to you, and on what terms and awards.
• Check accrued leave entitlements and how they’ll be dealt with in the price.
• Make sure wages and superannuation have been paid correctly. Underpayments can become your problem.

5. Licences, permits and compliance

• Identify the licences and permits the business needs, such as food, liquor or council permits, and whether they can be transferred.
• Check for any compliance notices, disputes or legal claims.

6. Goodwill, intellectual property and online presence

• Confirm the business name, trade marks, domain names, websites, social media accounts and customer databases are included and will be transferred.
• Check supplier, franchise and customer contracts, and whether they can be assigned to you.

7. The contract of sale

Your contract should protect you with:

• conditions for due diligence, finance and the landlord’s consent;
• a reasonable restraint of trade, so the seller can’t open a competing business nearby;
• a training or handover period from the seller;
• warranties about the business and its records; and
• clear terms for stock, adjustments and GST. A sale may be GST-free as a “going concern” if certain conditions are met, so get accounting advice too.

How we can help

Asher Freeman Lawyers helps buyers and sellers across Victoria with buying and selling a business, including contract reviews, due diligence, lease assignments and settlement. We quote fixed fees where possible and work alongside your accountant.