Coronavirus (COVID-19) update: We are currently updating information following recent Queensland and Australian Government announcements. Find assistance and support for coronavirus affected businesses and industries.

Business assets

As part of the due diligence process when you're investigating a business to buy, you should thoroughly review the business's fixed and intangible assets. Knowing exactly what's for sale will help you accurately value the business. It is a good idea to consult a professional adviser to help answer the following questions.

Assets

  • Do you know exactly what you are buying and not buying? Are there lists of assets and have you checked them?
  • If the business is a limited company, are you buying the shares or the assets? Legal advice is probably necessary if you're buying a company.
  • What is the book value, the market value and replacement value of the fixed assets? Which will you pay?
  • If you're going to buy inventory or work-in-progress, has a value been agreed on? Have you agreed on how it will be adjusted at the time of settlement, and within what limits?
  • Have you decided what intangibles you want such as mailing lists, business name, exclusive rights, or leases? Can they be transferred?

Stock

  • Are you sure that the rate of stock turnover is in line with industry practice?
  • Are you sure that the existing stock does not include slowly moving items from another business?
  • Has inventory been correctly valued in cost of goods sold statements?
  • Has an item of inventory been sold but not shipped?

Equipment

  • Is the equipment in good repair? Is it efficient? Is it in danger of becoming obsolete or difficult to service? Are parts available? Could it be sold easily?
  • Is depreciation claimed for the equipment and, if so, is it reasonable (particularly for the price you'll be paying)? Is it based on an accounting or tax viewpoint?
  • Is any equipment leased? Do you know the terms and the cost of all equipment leases?
  • Will you get ownership when equipment leases expire? What are residual values?

Also consider...