What separates buying a sound business from inheriting someone else's problems
The listing looks good. The seller seems genuine. The numbers they've shown you look promising.
Before any of that translates into an offer, there's a specific set of financial checks worth working through — because what you're buying is rarely just “what's in the listing.”
The short answer
Buying an existing business means independently verifying its financial position, understanding exactly what's included in the sale, and identifying any liabilities or obligations that would transfer to you. This process — commonly called due diligence — is what separates buying a genuinely sound business from inheriting someone else's undisclosed problems.
The core financial checks
Independently verify the financial statements. Don't rely solely on figures the seller provides — have your own accountant review profit and loss statements, tax returns and BAS lodgements, ideally for the past two to three years.
Understand true, sustainable earnings. Figures are often adjusted for one-off items and an owner's personal expenses run through the business — known as normalising earnings — to reveal what the business genuinely, sustainably earns.
Check liabilities carefully. Outstanding debts, whether there are amounts registered against business assets on the Personal Property Securities Register, and any obligations that would transfer with the sale.
Confirm what's actually included. Equipment, inventory, intellectual property, existing contracts — a clear, itemised list, not a vague assumption of “the business.”
Review existing contracts and leases. Will the landlord agree to transfer the lease into your name? Are there supplier or customer contracts that continue, and on what terms?
Why the seller's numbers alone aren't enough
A seller understandably wants to present the business in its best light — that's not necessarily dishonest, but it means the numbers you're shown are rarely the complete, independently verified picture. Genuine due diligence means your own accountant reviewing the underlying records — not just the summary the seller has prepared — and asking direct questions about anything that doesn't add up.
Understanding what you're really paying for
The purchase price typically reflects both tangible assets (equipment, stock, property) and goodwill — the value of the business's reputation, customer relationships and ongoing earning capacity beyond its physical assets. It's worth understanding specifically how much of the price relates to goodwill, and how dependent that goodwill is on the current owner personally — a business whose success is tied closely to one person's relationships and reputation carries more risk for a new owner than one with genuinely transferable systems and customer relationships.
Questions worth asking directly
Why is the owner actually selling? The genuine answer matters more than the polished one.
How much of the business's success depends on the current owner personally, rather than the business itself?
What's the trend in revenue and profit over the past few years — growing, stable, or declining?
Are there any pending legal disputes, unresolved tax matters, or outstanding employee entitlements?
What happens to existing staff, and are their entitlements properly accounted for in the sale?
A simple example
A prospective buyer is shown strong, consistent profit figures for a business. On closer, independent review, a meaningful portion of reported profit turns out to come from the owner not paying themselves a market wage for the hours worked — once a realistic wage is factored in, genuine sustainable profit is considerably lower than first presented. This is exactly the kind of detail proper due diligence is designed to surface before, not after, the purchase.
A quick self-check
Have I had my own accountant independently review the business's financials, rather than relying on the seller's summary?
Do I understand the business's true, normalised earnings — not just the headline profit figure?
Have I checked for liabilities, registered interests, or obligations that would transfer with the sale?
Do I have a clear, itemised understanding of exactly what's included in the purchase price?
When should you get professional help?
you're considering buying a business and want a proper due diligence process conducted before making an offer;
you want the seller's financial statements independently reviewed and normalised;
you want to understand how the purchase price should be structured across assets, stock and goodwill; or
you want the sale contract reviewed to ensure liabilities and obligations are clearly addressed.
Continue learning
→ How Is a Small Business Valued — and What Actually Makes It More Valuable?
→ How Do I Know Whether My Business Idea Is Financially Viable Before I Commit?
→ Sole Trader vs Company — Which Business Structure Is Right for Me?
SKC Accounting | Knowledge Centre | Knowledge Guide 097
Last reviewed: August 2026
General information only. This guide does not take into account your individual circumstances and is not a substitute for professional accounting, taxation, legal or financial advice.