Why the team matters
In many small business acquisitions, the employees are the business. They hold the customer relationships, the tacit knowledge and the daily routines that keep revenue flowing. Losing key staff in the first 90 days is one of the most common reasons newly acquired businesses underperform.
Your due diligence should go deeper than headcount and wage bills. You need to understand who is critical, who is flight risk, what entitlements you are inheriting and whether the culture fits your style of leadership.
Assessing the existing team
Before settlement, request an organisational chart, role descriptions and tenure data. Meet the team informally if the seller agrees — a brief coffee with key staff tells you more than a spreadsheet ever will.
Questions to ask the seller
- Who are the 2–3 people the business cannot afford to lose?
- Has anyone resigned or given notice since the business went on the market?
- Are there any informal agreements (extra leave, flexible hours, side payments)?
- What is the actual rota vs the contracted hours — is overtime systemic?
Transfer of Business (TOA)
Under the Fair Work Act, a transfer of business occurs when a new employer takes over work previously performed for an old employer. When this happens, employee service generally counts as continuous — which means you inherit their accrued annual leave, personal leave and long-service leave entitlements.
What transfers
- Continuous service for NES entitlements
- Annual leave balances
- Long-service leave (where applicable)
- Redundancy pay calculation base
What may not transfer
- Redundancy pay if you are a small business (<15 staff)
- Some EBA terms (check the agreement)
- Discretionary bonuses not in contracts
- Informal perks (parking, meals, flex)
The legal structure matters. In a share sale, employment contracts continue unchanged. In an asset sale, you typically offer new contracts and the TOA rules apply. Get legal advice on which structure you are using and what it means for entitlements.
Enterprise agreements & modern awards
If the business has an Enterprise Bargaining Agreement (EBA), that agreement overrides the modern award for covered employees. EBAs can have better pay rates, different penalty structures, or unique rostering rules. You are bound by the EBA for its nominal term.
If there is no EBA, the relevant modern award applies. Use the Fair Work Commission's Pay Calculator to verify that every employee is paid at or above the award rate for their classification. Common errors include failing to update rates after annual award increases or misclassifying senior staff into lower grades.
Leave liabilities & provisions
Leave is a real cash liability. When an employee resigns, you must pay out accrued annual leave and, in most cases, long-service leave. The balance sheet should show a provision for these liabilities. Your accountant should verify that the provision is adequate — especially for long-tenured staff.
Calculating LSL liability
Long-service leave rules vary by state. In NSW, employees accrue LSL after 10 years. In Victoria, the entitlement vests after 7 years. The payout rate is usually the employee's current ordinary pay rate or an average over the last period — whichever is higher. Check the relevant state legislation and ensure the seller's provision matches.
Redundancy, termination & restructuring
You may plan to restructure the team after acquisition. Before you do, understand the costs. Genuine redundancy requires minimum notice periods, redundancy pay (based on years of service), and consultation requirements. For non-genuine dismissals or performance terminations, the risks of unfair dismissal claims are significant — especially for employees with more than 6 months' service (or 12 months for small businesses).
The safest approach is to inherit the team intact for at least 90 days, build trust, and only make staffing decisions once you understand who is essential and who is not. Premature restructures destroy morale and often trigger legal claims.
Cultural fit & your leadership style
Culture is not a line item on the balance sheet, but it determines whether the business thrives or stalls after you take over. A team accustomed to an absentee owner may resent a hands-on buyer. A team used to weekly all-hands may feel abandoned by a distant owner.
Cultural assessment questions
- How does the current owner communicate with staff — formal, informal, or not at all?
- Is there a clear chain of command, or does everyone report to the owner?
- How are mistakes handled — blame, coaching, or ignored?
- What do staff say about the business when the owner is not in the room?
Red flags
High turnover in the 6 months before sale — staff may know something you do not.
Key staff refusing to meet you before settlement — they may already have another job lined up.
Wages paid in cash or split between reported and 'under the table' amounts.
No written employment contracts or contracts that are expired.
A culture of fear, blame or micromanagement that will collapse when the owner leaves.
Pending Fair Work claims, workers comp disputes or union grievances.
Model the true cost of your team
Use our calculators to forecast wages, super, leave liabilities and payroll tax under your ownership scenario.