The request list usually lands about a week after a buyer gets serious. Forty to sixty items. Financial statements, customer contracts, the lease, employee records, IP registrations, licences, insurance, company records. Businesses that hold their asking price tend to be the ones where that folder already exists. The ones that get discounted, or lose the buyer altogether, are the ones where the owner starts assembling it for the first time under deadline pressure.
This post walks through what buyers, and more importantly their accountants and lawyers, actually examine before an offer becomes a settlement. Most of the problems they find are predictable, and most are fixable in the year before you list. This is general information about a legal-heavy topic, so treat it as a map of where specific advice matters rather than advice itself.
Buyers rarely walk away because the business is bad
Buyers walk away, or cut their offer, because they can’t verify what they were told. A profitable business with messy records will often sell for less than a slightly less profitable one with a clean paper trail, because the buyer prices in the risk of everything they can’t check.
Remember that most offers are conditional. The headline number in a heads of agreement is a starting position, and due diligence is where it gets tested. Every gap the buyer’s advisors find becomes either a price reduction, a warranty you have to sign, an earn-out condition, or a reason to leave.
So the useful question for a seller is simple. What will their advisors find?
Why do businesses lose value in due diligence?
Businesses lose value in due diligence for a short list of recurring reasons: revenue that can’t be verified against contracts, agreements that don’t survive a change of owner, intellectual property the selling entity doesn’t actually own, informal employment arrangements, and a business that stops working when the owner steps out. In the sale readiness work we do, the same handful of findings come up again and again.
| What the buyer’s advisors find | How the buyer reads it | Realistic fix window |
|---|---|---|
| Top two customers on handshake terms, nothing in writing | Revenue could vanish at settlement | 6 to 12 months |
| Trademark never registered, or held by the founder personally | Brand may not be theirs to buy | 6 to 12 months |
| Owner approves every quote and holds every relationship | They’re buying a job, not a business | 12 months or more |
| Long-term contractors who work like employees | Possible entitlement exposure | 3 to 6 months |
| Lease with 14 months left and no option to renew | Location risk on day one | Depends on the landlord |
None of these are exotic. All of them are cheaper to fix before a buyer is watching.
What contracts do buyers scrutinise first?
Buyers and their lawyers generally start with customer contracts, supplier agreements and the premises lease, because those three carry most of the revenue and most of the risk. The first thing they check is whether the agreements exist in writing at all. The second is whether they transfer.
Many commercial contracts contain a change of control or assignment clause, which commonly means the other party’s consent is needed before the agreement moves to a new owner. Sellers are often surprised by this. A Brisbane services business we reviewed had years of steady revenue from a handful of accounts, and almost every one of those relationships sat on old email threads rather than current signed agreements. Nothing dishonest, just informal. To a buyer, informal reads as fragile.
Owners also consistently overestimate how transferable their customer relationships are. If a client stays because they like you personally, that’s real value, but it’s value that walks out with you unless it’s documented and gradually handed over.
Does the business actually own its intellectual property?
A buyer’s lawyer will check whether the selling entity, not the founder personally, owns the brand, the trademarks, the domain names, the software and anything created by contractors. This is one of the most common gaps we see, and it’s almost never deliberate.
Typical findings: a business name registered but no trademark behind it, a logo designed by a freelancer with no written assignment of the copyright, a domain sitting in the founder’s personal account from 2011, or software built by a developer whose contract never mentioned who owns the code. Ownership of contractor-created work often stays with the contractor unless it’s assigned in writing, which surprises a lot of owners.
Registration and assignment take time. A trademark application commonly runs for months before it’s registered, which is one reason IP tidying belongs a year out, not a month out. IP Australia publishes plain guidance on what can be registered and current fees, and a lawyer can advise on what your specific situation needs.
Employees, entitlements and the key person question
Buyers look at three things on the people side: whether employment terms are documented and consistent with the relevant awards, what the accrued entitlements bill looks like, and whether the business runs when the owner takes a fortnight off. The Fair Work Ombudsman publishes guidance on employment obligations, and a buyer’s advisors will generally check the paperwork against it.
Accrued leave is a real number that comes off the price or gets adjusted at settlement, so know it early. Contractor arrangements get particular attention. Someone who invoices monthly but works set hours, uses your equipment and reports to you may be treated differently than the label on the invoice suggests, and that’s exactly where getting advice on your specific arrangements matters.
The key person question is the slowest one to fix. If every decision routes through you, a year is roughly the minimum to build documented processes and a second layer of relationships. It’s also the single change that tends to move the multiple most.
Company records and the money trail
Expect the buyer’s team to reconcile the company’s registers against what’s on the public record with ASIC, and to trace any loans between the business and its owners. Directors’ loans, family members on the payroll, personal expenses through the business, all of it is normal in a privately held company, and all of it needs to be identified and normalised before a buyer sees the accounts, because unexplained related party entries make every other number look less trustworthy.
Clean company records are boring. Boring is what buyers pay full price for.
What can you fix in the year before listing?
Most of it. In our experience, twelve months is enough to paper the top customer relationships, sort IP ownership and start any registrations, formalise employment arrangements, extend or renegotiate the lease, and normalise the accounts. It is usually not enough to fully remove owner dependence, which is why serious sellers often start 18 to 24 months out.
The order matters less than starting. Fix the things with long lead times first: trademarks, the lease, key person risk. Paperwork you control, like contracts and employment terms, can come next. This is the sequence we run in our Sale Ready program, working alongside the owner’s accountant and with partner counsel on the legal pieces.
Questions owners ask before putting a business on the market
What are red flags on a sale contract?
From the seller’s side, common red flags include very broad warranties about the business, earn-outs tied to results you won’t control after settlement, vague descriptions of what’s included in the sale, and long restraint clauses. A contract like this is exactly where specific legal advice earns its fee, so have a lawyer review it before you sign anything.
Is 10% off the asking price a lowball offer?
In business sales the initial number matters less than what survives due diligence, because conditional offers commonly get adjusted once the buyer’s advisors have been through the records. A clean, well-documented business gives a buyer fewer reasons to chip the price after the offer is in.
What are common mistakes buyers make when making an offer?
Buyers commonly offer before seeing normalised financials, overlook change of control clauses in the contracts they’re relying on, and underestimate how much of the revenue depends on the departing owner. Sellers should know this list too, because it’s exactly what a well-advised buyer will probe.
What is due diligence in a business sale?
Due diligence is the buyer’s structured investigation of a business before settlement, covering financials, contracts, employees, IP, licences and legal exposure. It usually runs for several weeks after a conditional offer and determines whether the deal completes at the agreed price.
How long before selling should I start preparing?
Twelve months is a workable minimum for documentation, IP and financial tidy-up, and 18 to 24 months is better if the business depends heavily on you. Starting earlier costs little and tends to widen the pool of buyers who’ll take the business seriously.
Do I need a lawyer to sell my business?
Generally yes, for the sale contract at a minimum, and ideally earlier so the problems buyers find can be fixed before they’re found. An advisor can get the business ready, but the contract, warranties and restraints need qualified legal review for your specific deal.
If a sale is anywhere on your horizon, the cheapest time to find the gaps is before a buyer does. We run structured sale readiness reviews for Brisbane owners and work with business brokers who want listings that survive due diligence, with partner counsel handling the legal detail. Get in touch for a first conversation about where your business would stand up and where it wouldn’t. No obligation, and you’ll leave with a clearer list either way.