What is 'due diligence' when buying a business?

Posted by James Price | JPAbusiness on 22-Jan-2020 02:00:00

Close up of sheep looking down into cameraDue diligence is ‘the process of acquiring objective and reliable information on a … company as required, especially before a commercial acquisition’ [Macquarie Dictionary].

At JPAbusiness we regularly undertake due diligence for business-buying clients. The process involves checking and verifying information relating to the basic operations and performance of the business our client is considering buying.

Our role is to identify risks and issues, plus any material differences between what has been represented in information previously provided on the business, and what we identify in the due diligence process.

The over-riding purpose of due diligence is to ensure there are no nasty surprises after you buy the business.

If you know the risks before you jump (buy the business), then you can plan your landing (mitigate and manage the impact) during the business transfer. This is what the due diligence process is all about.

Free resources to assist

We have created a number of free resources to help our readers recognise what they need to look for during the due diligence process:

In using these resources, please keep in mind we always recommend seeking trusted, independent advice when undertaking due diligence on a business; this may involve your business advisor, accountant, solicitor, or all three.

3 core focus areas

As you will see in our Due Diligence Checklist, we recommend that your due diligence covers 3 core areas:

  • financial
  • commercial
  • legal.

For every business, the extent of focus and specific verification process in each of these three areas will vary. The extent of investigations will also vary greatly depending on whether you are purchasing the ordinary share capital in a Pty Ltd company, or the business assets and going concern.

Your advisor should help you focus wisely and not waste time and effort in areas that are less of a priority.

Do I have to do due diligence?

Buying a business is one of the most significant investments a person will make in their lifetime.

If you were considering buying a business and there was an identifiable risk of a negative event occurring within that business, such as:

  • loss of key staff
  • loss of key supplier or customer relationships
  • default on payments
  • legal claims
  • market slumps

… wouldn’t you want to know?

Due diligence allows you to recognise those risks before you commit to purchasing, so you can minimise the risk of a negative event impacting your financial strength and wellbeing. 

At JPAbusiness we regularly prepare detailed, custom due diligence checklists for business-buying clients. If you would like to know more about our due diligence services, contact the team on 02 6360 0360 (Orange) or 02 9893 1803 (Parramatta) for a confidential, initial discussion.


Due Diligence Checklist | JPAbusiness 


James Price 2018 smallJames Price has over 30 years' experience in providing strategic, commercial and financial advice to Australian and international business clients. James' blogs provide business advice for aspiring and current small to mid-sized business owners, operators and managers.


Topics: Buying a business, Due diligence, Template, Checklist, business advice, eBook, Business advisor, business basics, Parramatta, Orange NSW, free resources

Disclaimer: The information contained in this blog is general in nature and should not be taken as personal, professional advice. Readers should make their own inquiries and obtain independent, professional advice before making any decisions, taking any action or relying on any information in this blog. 





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