How to Check Financials When Buying a Business in Australia

Checking the financials when buying a business in Australia means independently verifying three to five years of profit and loss statements, balance sheets, cash flow records, tax returns, and Business Activity Statements (BAS) against each other — looking for inconsistencies the seller may not have intended you to find. You are not trusting the figures presented to you. You are building your own picture of how the business actually performs.

Most buyers don't do this properly. They read the information memorandum, look at the headline profit number, and ask the accountant to "have a quick look." That is not financial due diligence. That is optimism with extra steps.

This is covered in depth in Module 5 of the Playbook.

What financial documents to request

Before you start checking anything, you need the right documents. Request all of the following from the seller, going back three to five years where possible:

Profit and loss statements (also called income statements) — shows revenue, costs, and net profit by year and ideally by month
Balance sheets — snapshot of assets, liabilities, and equity at year-end
Cash flow statements — where the money actually went, as distinct from what the P&L says
Tax returns — the income tax returns lodged with the ATO, which should match the P&L
BAS (Business Activity Statements) — quarterly or monthly GST lodgements, which show reported revenue and should align with the P&L
Bank statements — 12 to 24 months of statements for all business accounts
Aged debtors and creditors — who owes the business money and who the business owes money to
Payroll records — wages paid, super contributions, and any outstanding entitlements

A seller who hesitates to provide any of these is telling you something important (and it isn't that the business is in excellent health).

How to reconcile BAS against the P&L

This is the check most first-time buyers skip entirely, and it is the most useful one.

BAS lodgements are filed with the ATO independently of the business's internal accounts. They show total GST-taxable sales for each reporting period. If you add up the quarterly BAS revenue figures and they don't match the annual P&L revenue, one of them is wrong — and it's rarely the BAS.

The reconciliation is straightforward:

Add up the total sales reported across all BAS lodgements for a given year
Divide by 1.1 to strip out GST
Compare against the P&L revenue for the same year

A small variance is normal (timing of lodgements, GST-exempt income). A large variance — say more than five or ten percent — needs a direct explanation. I've seen businesses where the P&L showed $850,000 in revenue and the BAS backed up $620,000. The seller's explanation was "accounting timing differences." It wasn't.

This single check catches a lot of the creative revenue presentation that shows up in small business sales. Add it to your due diligence checklist template.

Reading the profit and loss statement

The P&L is where most buyers start, but few read it carefully enough.

Work through it line by line. What you're looking for:

Revenue concentration. Is income spread across many customers, or does one client represent a large share? For a trades business — plumbing, electrical, HVAC, cleaning — check whether any single customer makes up more than 20% of revenue. That's a risk that belongs in your price.

Revenue consistency. Plot monthly revenue where possible. Seasonality is fine and expected. Sudden spikes in the 12 months before sale are not. A plumbing business that did $60K per month for three years and then $95K per month in the year the seller decided to sell deserves a careful explanation.

Owner's salary versus what the market pays. Most owner-operated small businesses in Australia run the owner's salary through as a cost, but at a figure that may bear no relation to what it would cost to replace them. Normalise this. If the owner earns $80,000 but a competent manager would cost $120,000, that gap comes out of your profit. See the EBITDA normalisation checklist for how to work through this properly.

Discretionary expenses. Common ones: personal vehicle costs, family members on payroll, owner's phone and travel, personal insurance policies run through the business. These are legitimate add-backs, but only if they are genuinely discretionary and won't recur under your ownership.

Cost of goods sold versus gross margin. For a cleaning or landscaping business, labour is the primary cost. If wages as a percentage of revenue have been creeping up over three years, that's either a pricing problem or a productivity problem — both of which you inherit.

What to look for in the balance sheet

The balance sheet is where the liability surprises live.

Check for:

Unpaid super obligations. The ATO can make a company director personally liable for unpaid superannuation guarantee contributions. Confirm that all super is paid and current before settlement. A broker told me last year about a deal that fell over four weeks before settlement when the buyer's accountant found $180,000 in unpaid super the seller had been quietly rolling over for three years.
Outstanding ATO debt. Request a tax portal extract or director's statutory declaration confirming no outstanding ATO debt. Don't rely on the seller's word.
Related-party loans. Look for loans to/from directors, related entities, or family members. These can represent cash that's been stripped from the business, and they need to be resolved as part of settlement.
Lease liabilities. Any equipment on finance leases shows up here. Check whether the business is buying assets or renting them — this affects your ongoing costs.
Debtors aging. If trade debtors are on the balance sheet, look at the aging schedule. Debtors over 90 days are often uncollectable. Don't let the seller include them in working capital at face value.

When you're valuing the business, these adjustments can shift the number significantly.

Verifying cash flow

A business can look profitable on a P&L and be consistently consuming cash. That's not unusual — it's often how working capital cycles work — but you need to understand it.

Match the P&L profit to the movement in the bank balance over the same period. If the business reported $200,000 in profit but the bank balance only grew by $40,000, ask where the rest went. Common explanations: principal repayments on debt (which don't appear as an expense on the P&L), drawings by the owner, or asset purchases. All of these are legitimate. All of them affect your view of the real cash return of the business.

The bank statements are your ground truth. Everything else is an interpretation of what happened. The bank statements show what actually happened.

Tax returns and ATO compliance

Request the tax returns lodged with the ATO for the past three years. Cross-reference the taxable income with the P&L net profit — they should be close, with explainable differences (depreciation is a common one).

Significant discrepancies between reported P&L profit and taxable income often indicate either aggressive tax structuring that will change under your ownership, or that the P&L presented to you during the sale process doesn't match the one filed with the ATO. Neither is a comfortable position.

Also confirm:

GST registration is current
Payroll tax obligations (threshold varies by state — in New South Wales it kicks in above ~$1.2 million in annual wages)
Any outstanding ATO payment plans that will need to be resolved

For the financial verification process to be complete, you want an accountant to confirm directly with the ATO that the business has no outstanding obligations. This typically requires a signed release from the seller.

Red flags in small business financials

A few things that should make you slow down:

Accounts prepared only at tax time. If the seller can't show you monthly management accounts — just an annual set prepared by their accountant for the ATO — you have limited ability to verify in-year performance. This is common in small trades businesses and not necessarily sinister, but it limits your ability to verify monthly revenue trends.

Financials that only became tidy in the last 12-18 months. Some sellers clean up their books when they decide to sell. Revenue that was previously run through a personal account gets moved back to the business; costs get reclassified. If the business suddenly looks more profitable than it did for years prior, understand why before you act on it.

Declining revenue that the seller attributes to "personal choice." I've seen an owner claim he deliberately turned down work for two years because he was "winding down before the sale." His revenue had fallen 35% over that period. It wasn't a deliberate wind-down. He'd lost his biggest client.

Unusual cash transactions. A business with significant unreported cash income is a risk, not a bonus. You're inheriting whatever arrangement the seller has with the ATO, and that arrangement may not survive the change in ownership.

For a full walkthrough of how to structure the financial review within a broader process, read the full due diligence checklist.

When to use an accountant

Use an accountant. Don't try to do this entirely yourself.

What you want is a registered accountant (ideally a CA or CPA with small business transaction experience) to review the financials independently, reconcile BAS, confirm ATO standing, and prepare a report on their findings. This typically costs $3,000–$8,000 for a small business acquisition in Australia. It is not optional.

Your role in financial due diligence is to understand what the accountant finds — not to outsource your thinking to them. Read the report carefully. Ask questions. If something doesn't make sense, push on it. The accountant will tell you what they found; you need to decide what it means for the price and structure of the deal.

When you get to negotiating the price, a well-documented financial review gives you specific, concrete grounds for any price adjustment you want to make.

Want the full checklist? The EBITDA Normalisation Checklist walks through every common add-back and adjustment for Australian small business acquisitions — free to download.

FAQ

How do I find a company's Australian financial statements? For companies registered with ASIC, financial reports may be available through ASIC Connect's company search (for larger companies required to lodge). For small proprietary companies — which covers most small business acquisitions — financial statements are not publicly available and must be requested directly from the seller as part of due diligence.

What to look for when buying a business in Australia? Financial statements, tax returns, BAS lodgements, bank statements, debtors and creditors, payroll records, lease and contract obligations, and confirmation of no outstanding ATO debt. Start with three to five years of historical financials and reconcile them against each other before accepting any headline profit figure.

How much is a business worth with $1 million in sales in Australia? Sales revenue alone doesn't determine value — profit does. A business turning $1 million in revenue might earn $80,000 in profit (8% margin, common in competitive trades) or $300,000 (30% margin, common in specialised services). At typical multiples of 2–4x EBITDA for small businesses in Australia, that's a valuation range of $160,000 to $1.2 million from the same revenue figure.

Can ChatGPT analyse financial statements? Yes, with caveats. You can upload PDFs or spreadsheets of financial statements to ChatGPT or Claude and ask for analysis, anomaly detection, or ratio calculations. This is genuinely useful as a first-pass review to flag obvious inconsistencies. It doesn't replace a qualified accountant and shouldn't be your only review — but it's a useful tool if you want to stress-test your own reading of the numbers before the accountant's report arrives.

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