Seller‑Side Due Diligence: What a Good Accountant Must Do Before a Business Sale in Australia Sel...Seller‑Side Due Diligence: What a Good Accountant Must Do Before a Business Sale in Australia Sel...
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Tupe Tam Yan
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• Apr 12
Seller‑Side Due Diligence: What a Good Accountant Must Do Before a Business Sale in Australia
Selling a business in Australia is one of the most significant financial events a small‑to‑medium business owner will ever experience. It’s not just a transaction — it’s the culmination of years (sometimes decades) of work, risk, sacrifice, and personal investment. As an accountant acting for the seller, my role is to ensure the business is presented with clarity, accuracy, and defensible financial logic. That means preparing the business for scrutiny before the buyer even begins theirs.
This process is known as seller‑side due diligence, and when done properly, it protects the seller, strengthens valuation, reduces negotiation friction, and increases the likelihood of a clean, successful sale.
With 15 years in Australian tax, business services, and forensic accounting, I’ve learned that seller‑side due diligence is not just about numbers — it’s about narrative, transparency, and anticipating the questions a sophisticated buyer (or their accountant) will ask. Below is the framework I use when preparing a business for sale.
1. Understanding the Entity Structure — The Foundation of Everything
Before touching a spreadsheet, I need to understand how the business is structured, because the entity type determines:
how goodwill is treated
whether CGT concessions apply
how assets are transferred
what liabilities follow the sale
whether the owner’s personal assets are exposed
how the sale price is allocated
In Australia, small businesses are commonly structured as:
Sole traders
Partnerships
Discretionary or unit trusts
Pty Ltd companies
Each structure has different tax consequences. For example, a sole trader selling a business they’ve operated for over 15 years may be eligible for the Small Business 15‑Year CGT Exemption, which can eliminate capital gains tax entirely if conditions are met. A company, however, may need to consider the 50% active asset reduction, retirement exemption, or rollover provisions instead.
Understanding the structure early allows me to shape the sale strategy, the valuation narrative, and the tax planning opportunities available.
2. Preparing the Financial Core — The Documents No Buyer Will Proceed Without
A buyer’s accountant will always ask for the same foundational documents. If the seller cannot provide them quickly and cleanly, confidence drops and valuation suffers.
The essential documents include:
Profit & Loss Statements (3–4 years minimum)
Balance Sheets for the same period
Tax Returns (entity and individual, where relevant)
BAS statements
General ledger extracts
Depreciation schedules
Asset registers
Loan agreements and finance schedules
Employee entitlement summaries
Superannuation compliance records
Tax returns are particularly important because they show actual tax depreciation, not just accounting depreciation. Buyers look for consistency between accounting profit and taxable income — discrepancies must be explained.
If the financials are unaudited, I perform a forensic-style review to ensure accuracy, identify anomalies, and prepare explanations before the buyer asks.
3. Normalising Earnings — The Heart of Valuation
Most small businesses have discretionary expenses, owner wages, or one‑off costs that distort true profitability. As the seller’s accountant, I prepare a normalised earnings statement that adjusts for:
owner’s salary (if above or below market)
personal expenses run through the business
one‑off legal or repair costs
non‑recurring revenue
related‑party transactions
abnormal stock adjustments
private vehicle or travel expenses
This is where forensic accounting skills matter. Buyers want to see sustainable, repeatable earnings, not inflated numbers. My job is to present a fair, defensible picture that supports the seller’s valuation without crossing into exaggeration.
4. Trend Analysis — Showing the Story Behind the Numbers
A single year’s profit means nothing without context. I analyse:
revenue growth or decline
margin stability
customer concentration
seasonality
cost trends
cashflow patterns
debtor and creditor movements
A business with stable margins and predictable cashflow commands a higher valuation. A business with volatile revenue needs explanation.
Trend analysis also helps identify risks before the buyer does. If revenue dipped in one year, I prepare the explanation upfront — new competitor, owner illness, supply chain issue, etc. Transparency builds trust.
5. Reviewing Contracts, Leases, and Operational Dependencies
Financials tell one story; contracts tell another. I review:
customer contracts (especially if one client represents >20% of revenue)
supplier agreements
equipment leases
property leases
insurance policies
licences and permits
intellectual property documentation
Buyers want to know:
what obligations they’re inheriting
whether key relationships are secure
whether the business can operate without the current owner
If the business relies heavily on the owner’s personal relationships, I highlight this early and help the seller prepare a transition plan.
6. Employee Entitlements and ATO Compliance
Employee liabilities are a major due‑diligence focus. I verify:
annual leave
long service leave
superannuation payments
payroll tax
workers compensation
award compliance
Superannuation compliance is critical. Any unpaid super is a red flag that can derail a sale.
I also check for ATO payment plans, outstanding BAS, or historical issues. Buyers will find them — better that I prepare the explanation first.
7. Valuation Scenarios — Presenting a Range, Not a Guess
A good accountant never presents a single valuation number. Instead, I prepare valuation scenarios, such as:
valuation based on normalised EBITDA
valuation based on net tangible assets
valuation based on discounted future cashflow
valuation after applying CGT concessions
valuation after adjusting for working capital
This gives the seller a realistic range and prepares them for negotiation.
8. Capital Gains Tax Planning — The 15‑Year Concession and Other Small Business Reliefs
For many small business owners, CGT is the biggest financial event of their life. Australia’s Small Business CGT Concessions can dramatically reduce or eliminate tax on the sale.
Key concessions include:
15‑Year Exemption — if the business has been owned for 15+ years and the owner is over 55 and retiring, the entire capital gain may be tax‑free.
50% Active Asset Reduction — reduces the capital gain by half.
Retirement Exemption — up to $500,000 can be contributed to super tax‑free.
Small Business Rollover — defers CGT if proceeds are reinvested in another active asset.
My role is to determine eligibility early, model the tax outcomes, and structure the sale to maximise concessions.
9. Preparing the Business Overview — The Document Buyers Actually Read
Once the financial and operational due diligence is complete, I prepare a business overview that includes:
business history
revenue breakdown
customer profile
operational structure
financial highlights
normalised earnings
valuation summary
risk factors
transition plan
This is the document the buyer reads before deciding whether to proceed to formal due diligence.
A clear, honest overview builds trust and positions the seller as organised and credible.
10. Anticipating Buyer Questions — The Forensic Mindset
Finally, I prepare the seller for the questions buyers will ask, such as:
Why are you selling?
What would happen if you stepped away tomorrow?
Are there any disputes, liabilities, or compliance issues?
How dependent is the business on key staff or customers?
What risks should we be aware of?
A seller who answers confidently and transparently is far more likely to secure a strong offer.
Closing Thoughts
Seller‑side due diligence is not about making the business look perfect — it’s about presenting it honestly, clearly, and professionally. When the financials are clean, the narrative is coherent, and the risks are acknowledged upfront, buyers feel safer, negotiations run smoother, and valuations hold firm.
As an accountant with experience in business sales, forensic analysis, and Australian tax law, my goal is simple: protect the seller, strengthen their position, and ensure the business is presented with the clarity it deserves. __________________________________________________________________ Written by Victor Tyan MIntBus, BComm
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