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What is a Due Diligence

When selling a business, the business owner makes various representations about their business, such as trading performance, honest hours worked and staff hours needed (if any) to support working or non-working owners, profit & loss statements and other financial records.

A Due Diligence is engaged by the business buyer, to verify the integrity of those representations, basically, proving those statements are true.

A Due Diligence is not only about the financials, and can extend to any and all discovery that may influence the ongoing performance & profitability of the business. Actual rosters & wages are often a primary focus.

Whilst a Due Diligence can be close to a forensic audit, the majority are spot sampling of details to see if ¬†“things stack up”. As example, but not limited to :-

  • Actual Banking vs Sales records
  • Lotteries Commissions from the statement vs Profit & Loss calculation
  • Sales by department x expected category margin roghly equals reported Gross Profit on the P&L statement
  • Wages paid = PAYG employment summaries = True Rosters including owners hours to achieve those sales.

The most common form of Due Diligence is the random selection of a couple of BAS periods, then review everything to do with that, including :-

  • End of day balances
  • Banking & eftpos takings
  • Sales reports
  • Supplier invoices & proof of payments
  • Aged debtors & creditors

For our sellers reference, below are links to a few examples stored over the past few years.

The State Government has also published a broader expectation for a Due Diligence available here.

For any more detail or understanding, please call one of our Experienced Brokers