Vendor due diligence is a review of your business that you commission before going to market — not the review the buyer does after you’ve accepted their offer. You engage an accountant, lawyer, or M&A adviser to examine the business from the perspective of a sophisticated buyer, document what they find, and produce a report that identifies issues before any buyer sees them. In Australia, vendor due diligence is increasingly standard for business sales above $2 million in enterprise value. Below that, a self-prepared review with professional input usually does the job.
What Is Vendor Due Diligence?
Vendor due diligence (VDD) is a pre-sale audit commissioned by the seller. It covers the same ground as a buyer’s due diligence — financial performance, legal contracts, employment arrangements, intellectual property, leases, and regulatory compliance — but at a time when the seller still has options to fix problems before they become negotiating chips.
The output is typically a written report prepared by an accounting or legal firm. For larger transactions, separate financial and legal VDD reports are produced. The seller shares these reports with prospective buyers as part of the sales process, often alongside the information memorandum.
The fundamental rule: every issue a buyer discovers during their due diligence becomes a price reduction, an escrow holdback, or a warranty. Every issue you disclose in a VDD report, with a clear explanation of what you’ve done about it, becomes a non-event.
Why Do It Before the Buyer Does?
I was talking to a business owner late last year — he ran a commercial refrigeration maintenance business out of Perth, fourteen years in, recurring contracts with some decent WA hospitality groups. He accepted an offer at $2.4 million. The buyer’s lawyers spent eight weeks going through the business and found two things: a key customer contract that had a change-of-control clause requiring consent from the customer to transfer, and a lease where the owner had personally guaranteed it but hadn’t disclosed this to the buyer. The price came down by $340,000. He took it, because by that point he’d already told his family they were retiring.
Neither of those issues was unsolvable. The customer consent would have taken a phone call — the relationship was good. The lease guarantee could have been disclosed upfront with the landlord’s confirmation that it would be released on settlement. But he hadn’t looked for them before going to market, and he paid for that.
Vendor due diligence matters for three reasons:
It protects the price. Once a buyer finds a problem, it becomes leverage. When you’ve found it first and addressed it — or disclosed it clearly with context — there’s nothing to negotiate on.
It speeds up the sale. Due diligence is the slowest phase of any business sale in Australia. A buyer reviewing a business with a clean VDD report can complete their review in 4–6 weeks. Without one, the same process often runs 10–14 weeks. For sellers, time creates uncertainty — staff notice, customers notice, and the business can drift.
It increases deal certainty. In 2024 and 2025, deal fall-through rates in Australian SME M&A increased as buyers became more conservative. A VDD report signals that you’re a serious vendor who has done the work. PE buyers and corporate acquirers in particular — those most likely to pay a premium — prefer a prepared vendor with a data room over one who hands over a folder of PDFs on request.
What Vendor Due Diligence Covers
A full VDD covers five areas. Smaller businesses may not need all five reviewed to the same depth, but a competent adviser will flag issues in each.
Financial Records and Normalisation
Three years of financial statements — reviewed or audited by a credible firm — plus a normalisation schedule showing EBITDA after add-backs. Buyers need to understand what the business earns on a sustainable basis, stripped of owner salary above market rate, personal expenses run through the business, one-off costs, and related-party transactions.
If you haven’t been through this process, EBITDA normalisation is worth understanding before any buyer conversation. A business reporting $400,000 in net profit might have $650,000 in normalised EBITDA after legitimate add-backs are properly documented. That’s not spin — it’s accuracy. But you need to be able to defend each line, and that preparation takes time.
Legal and Contracts
This is where most surprises live. A legal VDD should cover:
- Customer and supplier contracts — particularly any that contain change-of-control clauses requiring consent on a sale
- Leases — can they be assigned to a buyer, are there personal guarantees, when do they expire?
- Licences and regulatory approvals — do they transfer with the business or require new applications?
- Any litigation, formal complaints, or disputes, current or historic
- The corporate structure — confirm that what is being sold is clearly owned by the entity being sold
For more on how leases specifically affect a business sale, see what happens to a business lease when you sell. For questions about what structure the sale should take, the asset sale vs share sale decision affects which of these issues matter most.
Employees and HR
Buyers acquire employee entitlements — annual leave, long-service leave, redundancy provisions — along with the business. A VDD will document these liabilities clearly so there are no surprises at settlement. It should also cover:
- Any contractors who might legally be employees under Australian law (a live issue following several ATO enforcement actions)
- Succession risk — which employees leave if the founder does?
- Any formal HR complaints, performance disputes, or Fair Work matters
Intellectual Property and Branding
If business value relies on a brand, proprietary software, a customer database, or a process, the VDD confirms these are owned by the entity being sold — not personally by the owner, not by a related trust, and not licensed from a third party on terms that don’t transfer cleanly.
Physical Assets
For businesses with equipment, vehicles, or fit-out, the VDD documents condition and ownership. Finance secured over equipment needs to be disclosed. Buyers don’t find out about encumbrances at settlement (or they do, and it becomes a very expensive conversation).
Who Pays and What Does It Cost?
You pay. Costs in Australia typically run $15,000–$50,000 for a full formal VDD, depending on business size and complexity. For a business with $5M–$15M enterprise value, that range sits comfortably within the cost of a single round of buyer price negotiations — which a good VDD often prevents.
For smaller transactions — under $2M enterprise value — a formal report from an accounting firm is often overkill. A self-prepared document review, checked by your accountant and business sale lawyer, is usually sufficient. The goal is the same: know what you have before anyone else does.
Can You Just Let the Buyer Do Their Own Due Diligence?
Yes, and most Australian sellers do. It’s not illegal. It’s just slower, more expensive, and more likely to cost you money than the VDD would have.
The buyer’s due diligence serves the buyer. Their advisers are paid to find problems. The question is whether you’ve had a chance to identify those problems first — and fix the fixable ones — or whether you’re hearing about them for the first time across a negotiating table six weeks after signing a heads of agreement.
There’s a second benefit that’s easy to miss: VDD reduces your warranty and indemnity exposure after settlement. When you’ve proactively disclosed a known issue — documented in a professional report the buyer received before signing — the scope of the representations and warranties you give in the sale agreement is narrower. That protection runs for years after the sale completes (which is more than most sellers think about when they’re focused on settlement day).
Getting Started
Vendor due diligence isn’t the first step. Preparing your business for sale starts earlier — sorting your financial records, reducing owner-dependency, and understanding your likely valuation range. VDD sits in the middle of that preparation: after you’ve done the groundwork but before you approach buyers.
If you’re considering a sale in the next 12–24 months and want to understand what a preparation process actually looks like — including whether VDD makes sense for your business — speak with Miro Capital’s team. We work with Australian business owners across Perth and nationally, from the planning stage through to settlement.