4.8

Google Reviews

Need Help? Contact An Australian Business Lawyer Today 1300 003 077

How To Do Due Diligence for a Business Transaction

Reading time: 4 mins

In the dynamic world of business, entering into transactions without conducting proper due diligence can expose you to significant risks, including financial loss, fraud, or reputational damage. Due diligence is a critical process that ensures you make informed decisions by thoroughly investigating a business or individual.  

In Australia, where regulatory frameworks are stringent and online scams are increasingly prevalent, conducting due diligence is more important than ever. This guide provides a detailed approach to conducting due diligence, ensuring your business transactions are secure and beneficial.  

Key Takeaways

Conducting due diligence helps identify risks and make informed decisions  

Use tools like ASIC searches, InfoTrack, and credit reports for comprehensive research  

Lawyers play a vital role in reviewing contracts, identifying risks, and negotiating favourable terms  

Request detailed documentation to assess the financial and operational health of a business  

Compliance with Australian laws and industry standards is essential to avoid liabilities 

What is Due Diligence?

Due diligence is the process of investigating a business or individual to ensure that the relationship is legitimate, beneficial, and aligned with your goals. It involves assessing financial, legal, operational, and regulatory aspects to identify risks and opportunities.  

Why is Due Diligence Important in Australia?

Australia’s regulatory environment is governed by strict laws, including those enforced by the Australian Securities and Investments Commission (ASIC). Additionally, the rise of online scams and fraudulent activities makes due diligence indispensable for protecting your interests.  

Steps to Conduct Due Diligence

Researching Online

Google Searches  

Check the business website for professionalism, listed ABN, and accreditations (e.g., CPA for accountants)  

Analyse Google reviews for customer feedback and star ratings  

Search for adverse media using terms like “CompanyX + fraud” to identify any negative press 

Social Media Searches  

Look for customer reviews and comments on platforms like Facebook and LinkedIn  

Assess professionalism in responses to reviews or posts  

Identify any individual conduct that may reflect poorly on the business 

Conducting Third-Party Searches

ASIC Searches  

Use ASIC to access official company details, including registration status, ABN, directors, and shareholders 

InfoTrack and Credit Reports  

InfoTrack offers comprehensive searches, including PPSR reports, credit status reports, and property searches  

Credit reports reveal the financial health of a business, helping you avoid partnerships with financially unstable entities 

Personal Searches  

With consent, conduct bankruptcy checks, police checks, and civil litigation searches on individuals associated with the business 

Engaging a Lawyer

Benefits of Legal Assistance 
Lawyers bring expertise and industry knowledge to the due diligence process. They can:  

Conduct third-party searches and interpret results  

Review contracts to ensure they are legally sound  

Identify risks and suggest solutions  

Negotiate favourable terms on your behalf 

Requesting Documentation

Financial and Operational Records 
Request detailed documentation to gain a clear understanding of the business’s financial and operational status. Examples include:  

Audited financial statements and tax records  

Sales data and employee turnover rates  

Existing contracts and portfolios of work (for creative industries) 

Checking Industry Standards

Professional Bodies and Certifications 
Many industries in Australia are governed by professional bodies or standards. Examples include:  

CPA accreditation for accountants  

ISO certifications for manufacturing and engineering industries 

Compare the business’s practices with these standards to ensure compliance and quality.  

Word of Mouth

Reputation Within the Industry 
Ask for recommendations or feedback from others in the same industry to gain further insights into the business’s credibility and reputation.  

Frequently Asked Questions

What is due diligence in business transactions?

Due diligence is the process of investigating a business or individual to ensure that the relationship is legitimate, beneficial, and aligned with your goals. It involves researching financial, legal, and operational aspects to identify risks and opportunities.  

Why is due diligence important in Australia?

Due diligence is crucial in Australia due to the rise of online scams and fraudulent activities. It helps protect you from financial loss, reputational damage, and undesirable business relationships.  

How can I conduct due diligence on a company?

You can conduct due diligence by using tools like Google, ASIC searches, InfoTrack, and credit reports. Additionally, request documentation from the company, check industry standards, and seek legal advice for a thorough review.  .

What role do lawyers play in due diligence?

Lawyers assist with conducting searches, reviewing contracts, identifying risks, negotiating terms, and providing industry-specific advice to protect your interests during a business transaction.

What documents should I request during due diligence?

Request financial records (e.g., audited statements), tax records, sales data, employee turnover rates, existing contracts, and portfolios of work to gain a clear understanding of the business’s status.  

By following this structured approach to due diligence, you can uncover critical information, identify red flags, and make informed decisions that align with your business goals. If you need expert legal assistance with due diligence in Australia, contact our team today to ensure your business transactions are secure and beneficial.  

About the Author

Farrah Motley
Director of Prosper Law. Farrah founded Prosper online law firm in 2021. She wanted to create a better way of doing legal work and a better experience for customers of legal services.

Contact an Australian Business Lawyer Today.

Contact us for a free consultation

Contact Us For A Free Legal Consultation
About Prosper Law

We provide legal advice to business and individuals across Australia, no matter which State or Territory you are located. Our easy-to-access, online legal services mean that you can talk to our lawyers wherever you are, at a time that suits you.

4.8

Google Reviews

Get Your Free Guide Now
Need Legal Assistance?

Don’t hesitate – reach out for your free legal assistance today. Your peace of mind is just a click or call away!

Check Out Our Latest Blog Posts