8 Red Flags When Buying a Business

by Vanessa Lovie-Yousaf 6th of February, 2026

8 Red Flags When Buying a Business

Buying a business is one of the biggest financial decisions most people make, alongside buying a home. It deserves the same care with plenty of research, a clear head and good professional advice.

Most businesses for sale are genuine opportunities, but some come with problems that are not obvious at first glance. Below are eight warning signs to look out for. If you come across one, it doesn't automatically mean you should walk away, but it does mean you need to ask more questions before you go any further.

If you are new to buying a business, our guide to buying a business in Australia walks through the full process.

1. The Business Doesn't Suit Your Skills

A country cafe on the river, with flowers on the tables and regulars chatting over coffee, sounds like a dream. But have you ever made coffee for a queue of customers, or worked an eight-hour shift on your feet?

If not, it is worth trying before you commit. Taking a job in a similar business for a few weeks can tell you more than any information memorandum, and it is far cheaper than discovering after settlement that the work isn't for you.

You don't always need industry experience to buy a business, and many sellers will happily sell to a newcomer. But be honest with yourself about whether you have the skills, the energy and the support to run this particular business.

2. You Can't Meet the Owner

Whether you are looking at a cafe, an online business or a manufacturing company, a serious seller should be willing to meet you. If an owner wants your money, they should be prepared to give you their time.

Meeting the owner tells you a lot. You are taking over their reputation, their customers and the results of their work, so you want a sense of how they run things and whether you share similar values.

Ask if you can spend time in the business to see how it operates, how the staff work and how customers are treated. For a cafe or restaurant, visit at different times of the day and week, and compare how busy it is with the sales figures you have been given.

3. The Story Sounds Too Good

Sellers want to sell, and some are very good at presenting their business in the best possible light. Brokers are usually engaged by the seller, so their job is to market the business too.

That doesn't mean anyone is being dishonest, but it does mean you should look past the pitch. Ask questions, check what you are told against the records, and be wary of anyone who pushes you to commit before you have had time to look properly. Careful checking now can save you a lot of heartache later.

4. You Aren't Given Room for Due Diligence

Due diligence is your chance to investigate the business properly before the sale is completed. It is the best way to be confident that the business is what the seller says it is. If a seller resists reasonable checks, treat that as a warning.

How much you can see will vary. Sellers often limit access to sensitive information, such as customer lists or detailed sales history, until a buyer has signed a confidentiality agreement or paid a deposit. That protects the seller if the sale falls through, and it is a normal part of the process.

Even experienced business owners benefit from a second opinion. A business can go backwards quickly through poorly managed accounts, weak cash flow, an unexpected fit-out or a drop in marketing, and suddenly you are spending money you never budgeted for. Use an accountant and solicitor who understand business purchases. For help building your team, read the 5 experts every business buyer needs on their team.

5. The Financials Don't Add Up

You may read a profit and loss statement with ease, or you may be the ideas person or the talented chef. Either way, get an accountant to review the numbers. Figures can tell you a lot about a business, but they can also hide a lot.

Most buyers look at around three years of financial records, although that depends on the business. The larger the purchase, the more history you will usually want to see.

Financial statements don't always show the full picture. Owners may move money around for tax reasons, and businesses that handle a lot of cash, or have been running for many years, can be hard to read. Ask for BAS statements and tax returns, and compare them with the business's bank statements.

The harder part is understanding why the numbers look the way they do. Ask questions such as:

Did the business have a strong year because of a major contract that is about to end?
Have new staff pushed up expenses?
Does the owner work 10 hours a week or 100?
What debts and loans are outstanding?
Are there unpaid invoices that may never be collected?
Has a key staff member left, perhaps to open a competing business nearby?

The numbers are the place to start, but understanding how they came about is what tells you whether the business is worth the price.

6. There Are Contracts You Haven't Seen

Most businesses have ongoing agreements, such as phone and internet plans, supplier contracts, marketing services and equipment rentals. Some may be in the owner's personal name, especially for sole traders and partnerships, and some may never reach you during due diligence because the paperwork goes to the owner's home address.

Depending on how the sale is structured, some of these commitments could become your problem after settlement. Go through the expenses line by line, ask what each recurring payment is for and request copies of the agreements behind them. Your sale of business contract should make clear which contracts transfer to you.

As an example, imagine a cafe owner who expected sales to keep growing and ordered $100,000 worth of custom-printed cups, still sitting with the supplier. If that commitment comes with the business, you could be using those cups for years before you have paid them off.

7. The Lease Is Weak or Short

For businesses that rent their premises, the lease is a big part of what you are buying, especially in retail and hospitality. A short or unfavourable lease can reduce a business's value considerably. See 6 ways a lease agreement can impact your business sale price.

Questions to check in the lease or ask the landlord:

How long is left on the lease, and are there options to renew?
Can the lease be transferred to you, and is the landlord's approval needed?
Are there any fees to transfer the lease?
Will you need to do a fit-out or refurbishment?
How are water, electricity and other outgoings handled?
Are there restrictions on what you can trade?
Are there required or restricted opening hours?
Does the landlord plan to sell or redevelop the building?
In a shopping centre, are there restrictions on competing tenants?

8. There's No Training or Handover in the Contract

Even if you have years of experience in the industry, you won't know how this particular business runs. A handover period with the seller helps you learn things like:

Who handles the bookkeeping, and how orders are tracked
Which suppliers and couriers the business uses
What employment arrangements are in place
Who the regular and most valuable customers are
How the business fits into the local community
How best to build a relationship with the existing team

Make sure the training period is written into the contract of sale. If you find you only need a day or two, you can always tell the seller you no longer need them, but you can't easily add training once the deal is done. A seller who cares about their customers and staff will usually want a proper handover too.

Making the Decision

Working through these eight points won't always give you a clear yes or no, but it will give you a much better understanding of the business and whether it is right for you.

Every business, owner and buyer is different. Some businesses have real potential that the current owner hasn't tapped, and just need fresh ideas. Others need specialist skills or more investment than they are worth. Do your research, get professional advice and make the decision that suits your goals and your family.

Tags: buying a business