Questions to ask when buying a business: what to ask the seller, and when

The right question to ask a seller depends on how far along you are, so this guide groups them by stage, from first enquiry to offer. For what each listing figure means, see how to read a business-for-sale listing, and for the checks that follow, our due diligence guide.

Stage 1: your first enquiry, before an NDA

Your first message goes through the enquiry form on the listing, straight to the seller or listing agent. The seller may not share the business name or detailed figures yet, so ask enough to decide whether to keep going.

• Why are you selling? This is the seller's own account. Note it and test it later against the figures and the lease.
• How long have you owned the business? Years trading can include earlier owners, and a newer owner may have fewer years of their own records.
• What exactly is included in the price? Equipment, vehicles, the business name, website and phone numbers. If stock is extra, ask for a current estimate.
• Is the price negotiable, and how did you arrive at it? The second answer tells you more than the first.
• Were the figures prepared by an accountant? And which financial year do the listing figures cover?
• Is there a lease, and how long is left, including options? For many businesses the lease is a large part of what you are buying.

If the answers fit, use the same form to ask for a confidentiality agreement (an NDA), and read it before you sign.

Stage 2: after the confidentiality agreement

Once you have signed, the seller may share the business name, address and an information pack. Send specific questions in writing, and use our due diligence checklist to track the answers.

• Is turnover rising, steady or falling, and why? Monthly figures show the trend and recent months better than annual totals.
• How seasonal is the business? Which months are quietest, and how are rent and wages covered then?
• What are the add-backs, and what is the evidence for each? See add-backs and normalised profit.
• How many hours do you work, and in which roles? If the profit relies on the owner working without a wage, someone has to do that work after you buy.
• Who are the largest customers, and what share of sales does each make up? If a few carry the business, ask whether their contracts can transfer.
• Who are the main suppliers, and on what terms? business.gov.au suggests checking for outstanding agreements between the seller and suppliers.
• Who works here, what are they paid, and which award or agreement covers them? The Fair Work Ombudsman describes awards as legal documents setting minimum pay rates and conditions, so ask for payroll records your adviser can check.
• What leave has each employee accrued, and who is likely to stay? On a transfer of business, the Fair Work Ombudsman says accrued annual leave may carry across, or a new employer not associated with the old one can decide not to recognise that service, and the old employer then pays it out. See employees when a business is sold.
• Can I see the lease, and has the landlord been approached? Ask about outgoings and the next rent review. See assigning a commercial lease.
• Which licences and permits does the business hold, and are they current? Which transfer, and which would you need to apply for yourself?
• Is any equipment under finance, and are there other debts? business.gov.au suggests checking for outstanding debts, refunds and warranties, and for debts owing on assets registered on the Personal Property Securities Register.

Stage 3: the site visit

A visit shows you what an information pack cannot. Agree the time with the seller, and how you will be introduced, because staff, customers and suppliers may not know the business is for sale.

While you are there, look at:

• How busy it is, compared with what the figures suggest for that day and time.
• The premises and equipment, including anything due for repair or replacement.
• How the owner spends their time. Are they the only person who can do certain jobs?
• Stock on hand, and whether any of it is old or slow moving.

Ask the seller what a typical week looks like and what maintenance is coming up. business.gov.au suggests talking to existing customers, employees and neighbouring business owners, so agree with the seller when and how you can.

In front of staff:

• do not mention the sale, the price or your plans unless the seller has told them
• do not ask about their pay, their future or the owner
• do not promise jobs or changes
• do not photograph records or rosters without the seller's agreement.

Stage 4: before you make an offer

The contract of sale usually covers these points, so raise them before you settle on a number.

• How long will you stay to hand over and train me? Agree the period and tasks, including introductions to key customers and suppliers.
• Will you agree to a restraint of trade? A restraint limits the seller from competing with the business after the sale. Ask what area, period and activities the seller would accept, and have your solicitor check the wording.
• Would you consider vendor finance? Our guide to vendor finance covers the terms to agree.
• How will stock be handled? Is it included, or counted and valued at settlement, and what happens to damaged stock? See stock at valuation.
• What warranties will you give? For example, that the financial records are accurate and there are no undisclosed debts or disputes.
• Which conditions will you accept? These can include finance approval, due diligence, the landlord's consent to the lease assignment and the transfer of licences.

Stage 5: questions to ask yourself

Some questions only you can answer. business.gov.au suggests buyers consider whether they have the right skills, enough time and capital, and the readiness for unusual work hours and time pressure.

• Can I do the owner's job? List the owner's weekly tasks and be honest about which you can do, which you can learn and which you will pay for.
• Can I afford a slow period? Work out how you would cover loan repayments, rent and wages through the quietest months. Our business loan calculator can help.
• Do the numbers work once I pay myself? If the profit does not allow a wage for your hours, take one out first and see what is left.

How to judge the answers

• Get them in writing. Follow up a call with an email recording what you were told, and ask your solicitor whether answers you rely on should be backed by warranties.
• Check them against the records. An answer about the trend should match the monthly figures and Business Activity Statements, and an answer about staff should match the payroll.
• Treat evasion as a signal. A vague reply, a promise to explain later or a changing answer may have an innocent explanation, but follow it up directly before going further.
• Separate facts from opinions. "Plenty of room to grow" is an opinion. Ask what it is based on.

Questions for your accountant and solicitor

Some questions belong with the people working for you, not the seller.

Ask your accountant:

• Do the financial statements, Business Activity Statements and bank records agree, and what is the normalised profit?
• Does the price include GST? The ATO says the sale of a business as a going concern is GST-free if all of its conditions apply, including a written agreement between buyer and seller before the sale and the buyer being registered or required to be registered for GST.
• How should I structure the purchase, and what is the tax position?

Ask your solicitor:

• What do the warranties, conditions and restraint protect me against, and what happens if one is not met?
• Will the lease, supplier contracts and licences transfer, and what consents are needed?
• Which searches should be done before settlement, and who pays which staff entitlements under the contract?

Our guide to the legal and tax steps in a business sale covers these in more detail.