Buying an existing business can be one of the smartest ways to step into ownership. You inherit customers, cash flow, staff and a proven model rather than starting from zero. But only if you know exactly what you are buying. Asking what should I look for when buying an existing business? is the right starting point. This guide walks you through the key things to check before you sign anything, from financials and contracts to the lease, staff and licences, so you can buy with confidence and avoid costly surprises.
Step 1: Be clear on what you want and what you can afford
Before you start inspecting businesses, get clear on what you are looking for. The right business matches your skills, your lifestyle and your budget. A passionate cook may thrive running a cafe but burn out managing a manufacturing operation. A buyer chasing a lifestyle change may regret a business that demands seven days a week.
Work out your total budget, not just the purchase price. Most buyers also need working capital for the first few months, money for fitout or refresh, plus legal, accounting and broker fees. Have your finance ready before you make offers, since serious sellers expect buyers who can actually settle.
Step 2: Examine the financials in detail
The financials are where the truth lives. Ask for at least three years of profit and loss statements, balance sheets, tax returns and BAS statements. Look for steady, well documented profit rather than a single strong year, and pay close attention to trends. Revenue that is climbing tells a different story to revenue that has been falling.
Check for owner add backs, which are personal or one off costs the seller has removed to make profit look higher. Some are legitimate, others are not. Compare the adjusted profit to the asking price. Most small to mid sized Australian businesses sell for roughly two to five times annual profit, depending on the industry and the quality of the earnings.
Red flags in the numbers
- Cash heavy revenue with little supporting documentation
- Large unexplained add backs or sudden profit jumps
- Declining sales or shrinking margins over time
- Heavy reliance on one or two customers
- Tax returns that do not match the figures the seller is showing
Step 3: Understand why the seller is exiting
Always ask why the owner is selling, and then verify the answer. Genuine reasons include retirement, ill health, relocation, family circumstances or a new venture. Warning signs include a sudden sale, vague answers, a pending lease expiry, a major competitor opening nearby or upcoming industry changes the seller has not mentioned.
A confident seller will explain their reason clearly and back it up. If something feels off, slow down and dig deeper. The cost of asking too many questions is small. The cost of buying the wrong business is enormous.
Step 4: Review the lease and the location
For most retail, hospitality and service businesses, the lease is almost as important as the financials. Check how many years are left on the current term, what options to renew exist, how the rent is reviewed, and whether the landlord will assign the lease to you on the same terms.
Walk the location at different times of day and on different days of the week. Look at foot traffic, parking, nearby competition, the condition of neighbouring shops and any planned developments that could change the area. A great business in a declining location is a much harder sell when you eventually exit.
Step 5: Check customers, contracts and suppliers
Look closely at the customer base. A business with hundreds of repeat customers is far less risky than one where 60 percent of revenue comes from a single client who could walk away after settlement. Ask for a breakdown of revenue by customer and look for concentration risk.
Review any major contracts. Will they transfer to you on the same terms, or do they need the other party to agree? Check supplier arrangements too. Are prices locked in, are deliveries reliable, and is the business dependent on a single supplier who could change terms once ownership changes?
Step 6: Assess staff, systems and operations
Find out who really runs the business day to day. If the current owner does everything, you are not buying a business so much as buying a job. A strong business runs on documented systems and capable staff, not on one person’s effort and memory.
Ask which key staff are likely to stay after the sale, what their pay and entitlements look like, and whether there are any unresolved employment issues. Look at how processes are documented, what software the business uses and how easily a new owner could step in and keep things running.
Step 7: Verify legal, licences and compliance
Make sure the business actually owns what it appears to own. That includes the business name, trademarks, domain names, customer lists, recipes and any other intellectual property. Confirm that all required licences, permits and registrations are current and transferable, especially in regulated sectors like food, alcohol, childcare, health, automotive and trades.
Ask whether there is any pending or threatened litigation, any tax disputes, any unpaid super or any safety issues. Your solicitor should review all of this before you commit.
Step 8: Get the right professional help
Buying a business is not a place to save money on advice. Engage a business broker, an accountant who understands business sales, and a solicitor with experience in commercial transactions. A good broker can help you find quality listings, qualify opportunities and negotiate, while your accountant and solicitor protect you during due diligence and contract review.
Independent advice from professionals who work for you, not the seller, is one of the best investments you will make in the whole process.
Step 9: Do thorough due diligence before you sign
Due diligence is your chance to verify everything the seller has claimed. Use a formal checklist covering financials, tax, legal, lease, staff, contracts, assets, stock, licences and operations. Compare what you find against the asking price and the original sales material. If the numbers or facts do not stack up, renegotiate, restructure the deal or walk away.
The contract of sale should reflect what you have agreed, include sensible warranties from the seller, and allow you a clear handover period so the previous owner introduces you to staff, customers and suppliers.
Frequently asked questions
How much should I pay for an existing business?
Most small to mid sized Australian businesses sell for around two to five times annual profit, with the exact multiple depending on the industry, profitability, assets, lease, growth potential and how transferable the business is. A professional valuation gives you a defensible number to work from.
What financial documents should I ask for?
At a minimum, request three years of profit and loss statements, balance sheets, tax returns and BAS statements, plus bank statements, recent management accounts, an asset register and details of any liabilities.
Should I use a business broker when buying?
You can buy directly from a private seller, but many buyers work with brokers because they have access to listings, can qualify opportunities and help structure the deal. Either way, independent advice from your own accountant and solicitor is essential.
How long does due diligence take?
Most due diligence runs for two to six weeks, depending on the size and complexity of the business and how well the seller’s records are organised. Rushing this stage is one of the most common mistakes new buyers make.
Looking to buy an established business?
BPA Business Brokers has been helping Victorian buyers find and secure the right business since 1999. Our team can guide you through valuation, due diligence and negotiation so you buy with confidence and the best possible outcome.
