Buying or selling a business: Is due diligence a waste of money?

Racha Abboud

An alarming study undertaken by Griffith University’s Asia-Pacific Centre for Franchising Excellence has found that over 40% of new business owners (including franchisees) were unaware of what due diligence is and how it affects the consideration of a business venture.

Due diligence is the extensive appraisal of a business or franchise undertaken by a prospective buyer. A due diligence audit will reveal the following information:

Given the level of insight due diligence provides, it’s concerning that only 19% of Australian business owners are comfortable with the process. It is possible that due diligence is seen as an expense to the business, hence accounting for why so many Australian small business owners are hesitant to commence the process. However, small business owners should instead view the process as an investment, rather than a cost as it provides critical knowledge required to make a calculated acquisition. 

Failing to audit a business deprives prospective buyers of the opportunity to consider if their purchase is good value for money, if they are equipped to combat inherent challenges faced by the business and if the business model meets their expectations.

Three things to remember about due diligence

If you’re a prospective buyer and are unsure how to digest the information discovered in due diligence, or are selling and are unsure how to prepare your due diligence documents, please contact: 

Racha Abboud, Senior Associate
Phone: +61 2 9895 9283
Email: rabboud@colemangreig.com.au 

Assistant Author - Emily Lucas, Legal Cadet