Due diligence checklist for buying a business

Financial records

Ask for at least three years of annual financial statements, management accounts, VAT returns and bank statements. The bank statements matter because they show whether sales and cash actually moved.

Rebuild normalised profit after a market related owner salary, once off costs, personal expenses and any unusual add backs. If the seller cannot explain an add back clearly, do not price it as repeatable profit.

Tax and legal standing

Check SARS compliance, VAT, PAYE, income tax, CIPC records, material contracts and any litigation. A clean tax status and accurate company records make transfer and funding easier.

Confirm whether the transaction is an asset sale or a share sale. Each structure carries different tax, liability and contract transfer consequences.

Customers, suppliers and staff

Look for customer concentration, supplier dependence and owner held relationships. A business with one customer or one supplier can lose value quickly after handover.

Review staff contracts, leave, disputes and transfer obligations under section 197 where the business transfers as a going concern.

Assets, stock and premises

Inspect equipment condition, finance agreements, warranties and replacement cost. Agree how stock will be counted and valued at handover.

For location based businesses, landlord consent and lease term are often more important than the equipment. A short lease can weaken the whole deal.

Final buyer decision

Summarise findings in a risk register with price impact, deal conditions and unresolved documents. A serious buyer knows which risks are acceptable and which should stop the deal.