Buying a business — what to do before you put in an offer
The Smart Buyer’s Guide to Preparing for a Business Purchase
Buying a business can be one of the most exciting financial decisions you ever make. Unlike starting from scratch, purchasing an existing business gives you access to an established customer base, operational systems, existing revenue, and immediate market presence.
For many buyers, it represents a faster pathway to financial independence and business ownership.
However, excitement alone should never drive a business purchase.
Before submitting an offer to a vendor, buyers need to carry out careful planning, financial analysis, and strategic evaluation. The early stages of a business purchase are where many costly mistakes can either be avoided or unknowingly locked in.
Too often, buyers fall in love with the idea of owning the business before properly understanding the financial realities behind it.
A business may appear successful on the surface, but hidden liabilities, poor cash flow, declining revenue, or operational weaknesses can quickly turn an exciting opportunity into a stressful financial burden.
The period before making an offer is arguably one of the most important stages in the entire business buying process.
This guide outlines the key areas buyers should focus on before presenting an offer to the vendor.
Understand Why You Want to Buy a Business
Before reviewing financial statements or speaking with brokers, it is important to clearly define your goals.
Ask yourself:
Why do I want to buy a business?
Am I looking for lifestyle flexibility, income, growth, or investment?
What industries interest me?
What level of risk am I comfortable with?
Do I want an owner-operated business or one managed by staff?
How involved do I want to be day-to-day?
Many buyers begin searching without fully understanding what type of business actually suits their lifestyle, skills, and long-term objectives.
The clearer your goals are, the easier it becomes to evaluate opportunities objectively.
Assess Your Financial Position
Before seriously engaging with vendors or business brokers, buyers should understand their own financial position.
This includes:
Available savings or deposit funds
Borrowing capacity
Existing debts
Personal financial commitments
Ability to access finance
Emergency reserves
Many buyers underestimate the total amount of capital required to purchase and operate a business successfully.
The purchase price is only one part of the equation.
You may also need additional funds for:
Legal fees
Accounting advice
Due diligence
Working capital
Stock purchases
Equipment upgrades
Marketing
Staff recruitment
Operational improvements
Having a realistic budget early helps prevent financial pressure later.
Research the Industry Thoroughly
Not every profitable business operates in a healthy industry.
Before pursuing a business opportunity, spend time understanding the broader market conditions.
Research:
Industry trends
Competitor activity
Consumer demand
Economic conditions
Regulatory changes
Growth potential
Technology disruption
Labour availability
A business performing well today may still face significant challenges in the future if the industry itself is declining.
Strong industry research helps buyers identify opportunities as well as potential risks before making commitments.
Review the Business Carefully
Once you identify a business of interest, begin assessing the operation at a high level before discussing formal offers.
Key areas to review include:
Products or services offered
Customer base
Supplier relationships
Staffing structure
Systems and processes
Market reputation
Online presence
Operational efficiency
Location and lease arrangements
Try to understand how the business operates day-to-day.
Questions worth asking include:
What makes this business successful?
What are its biggest challenges?
Is revenue stable or declining?
Is the business overly dependent on the owner?
Are systems documented properly?
Are there growth opportunities?
Understanding the operational side of the business is just as important as reviewing the financials.
Analyse the Financial Statements
One of the most critical steps before making an offer is reviewing the financial performance of the business.
Request at least three years of:
Profit and Loss Statements
Balance Sheets
Cash Flow Statements
GST Returns
Tax Returns
Bank Statements
Payroll summaries
The goal is to understand whether the business is genuinely profitable and financially healthy.
Look for:
Revenue consistency
Stable margins
Seasonal trends
Rising expenses
Debt obligations
Cash flow strength
Profit sustainability
Many businesses can appear profitable while hiding operational weaknesses underneath.
Professional accounting advice at this stage can provide valuable insight.
Understand the Difference Between Profit and Cash Flow
Many buyers focus heavily on reported profits while overlooking cash flow.
Cash flow is often a stronger indicator of business health than profit alone.
A business may show accounting profits while struggling to:
Pay suppliers
Cover wages
Meet tax obligations
Maintain stock levels
Review:
Debtors
Creditors
Overdue invoices
Loan repayments
Tax liabilities
Stock turnover
Ask:
How quickly do customers pay?
Is the business reliant on overdrafts?
Are suppliers being paid on time?
Are there regular cash shortages?
Cash flow issues often become the buyer’s problem after settlement.
Verify Revenue Claims
Never rely solely on verbal assurances from the vendor.
Revenue should always be verified independently.
Request supporting evidence such as:
Bank deposits
Invoices
POS reports
Contracts
Customer agreements
Pay close attention to:
Revenue concentration from a few clients
Seasonal income spikes
One-off projects
Declining customer trends
If a large portion of revenue comes from one or two customers, the business may carry higher risk if those customers leave after settlement.
Understand What Is Included in the Sale
Not every business sale includes the same assets.
Before preparing an offer, clarify exactly what is being purchased.
This may include:
Equipment
Vehicles
Stock or inventory
Intellectual property
Customer databases
Website assets
Supplier agreements
Employment agreements
Licences and permits
You should also understand whether the transaction is structured as:
An asset sale
A share sale
Each structure carries different financial, legal, and tax implications.
Professional legal and accounting advice is highly recommended before proceeding further.
Assess Owner Dependency
One major risk many buyers overlook is owner dependency.
Some businesses rely heavily on the relationships, skills, or reputation of the current owner.
Ask:
Can the business operate without the current owner?
Is the current owner willing to assist with a handover period?
Are systems documented?
Will key customers remain after transition?
Are staff capable of operating independently?
High owner dependency can create significant risk during transition.
Review Existing Liabilities
A business may carry obligations that are not immediately visible.
Review:
Loans
Hire purchase agreements
Equipment finance
Supplier debt
Tax obligations
Employment liabilities
Legal disputes
Lease obligations
Never assume liabilities disappear automatically after settlement.
Understanding existing obligations helps avoid unpleasant surprises later.
Get Professional Advice Early
Many buyers try to minimise costs during the early stages by avoiding professional advice.
This can be a costly mistake.
Experienced advisors can help identify risks that buyers may not recognise themselves.
A good accountant can help:
Review financial performance
Assess profitability
Analyse cash flow
Identify red flags
Evaluate valuation assumptions
A lawyer can assist with:
Reviewing agreements
Lease analysis
Legal risks
Contract obligations
Sale structure
Professional advice often saves far more money than it costs.
Common Red Flags Before Making an Offer
Buyers should proceed cautiously if they notice:
Incomplete financial records
Poor cash flow
Declining revenue
Heavy customer concentration
High staff turnover
Outstanding tax obligations
Seller reluctance to provide information
Unclear ownership of assets
Frequent operational problems
These issues do not always mean the business should not be purchased, but they do require further investigation.
Preparing to Make an Offer
Once you have:
Reviewed the financials
Assessed operational risks
Understood the industry
Clarified what is included
Evaluated the business structure
Obtained professional advice
…you are in a much stronger position to submit an informed offer.
An offer should never be based solely on emotion or excitement.
A well-prepared buyer is far more likely to negotiate effectively, avoid costly surprises, and position themselves for long-term success.
Final Thoughts
The stage before making an offer is where smart business buying decisions are made.
Taking the time to properly research, analyse, and understand the business gives buyers greater confidence and reduces the risk of making expensive mistakes.
A business purchase should not only feel exciting — it should also make financial and strategic sense.
The better prepared you are before submitting an offer, the smoother the rest of the buying journey is likely to be.
What our clients say
“Dylan is one of the best accountants I've worked with. He makes a point of explaining things as plainly as possible to those of us who don't understand accounting speak. He has a solid knowledge of best practices in the industry, but most importantly he will always recommend what is most suitable for your specific business. I will continue to recommend Dylan and Affinity Accounting to my clients when they are looking for an accountant.”
-Jay Brooker