a few points to consider when buying a business:

Get a General Overview. Get as much general information as you can. Determine if the products and services are of interest to you, the general location is somewhere you desire, and the cash flow after debt service is at a level you are comfortable with. Look at the down payment requirement or financing options. If the down payment is not close to an amount you are willing to invest, it’s probably best to look at a different business and save everyone a lot of time.

Get More Detailed Information. If the general information presented peaks your interest, ask for more detailed data. In most cases, you will be asked to sign a confidentiality agreement and provide evidence of baseline financial qualifications. Do not be offended by this. It shows the seller you are a serious buyer. Also keep in mind that the seller may also become your banker if he or she offers financing of the sale.

Look at the historical revenue and cash flow. Is the business growing? If not, ask why. Is the owner suffering from burnout? Was there an extraordinary event that affected revenue? Determine how much of the transaction the seller is willing to carry. A seller who offers some form of financing has confidence in the business and an incentive to help it succeed. If there is no seller financing, ask why?

Take a Look. During your visit to the business, take time to get to know the owner. Don’t worry about negotiating a price at this point. That could create tension between you and the seller, and the Broker or Intermediary will handle those negotiations anyway. Determine if the seller takes pride in the operations and service given to customers. Find out if there is any technical expertise or licensing you would need to successfully run the business. If possible, find out if there is a way to increase or expand the business and what would be involved. Is the staff trained and loyal? Will the owner stay with the business for a specified period to assist with the transition to a new owner? Do not be afraid to ask about both the positives AND negatives associated with running the business. Most sellers (especially those who offer financing) will want you to be aware of the details involved in managing the business so that you will succeed. Be sure to look at the furniture, fixtures, and equipment to determine the general condition. Ask if any additional capital expenditures are imminent.

Analyze the Data. Beware of “analysis paralysis.” Consider all the information you now have, but keep in mind that there is no such thing as the perfect business. The most important part of an acquisition is knowing what the challenges are and having a plan to manage them. Give close analysis to the cash flow of the business, looking at the historical trends, and try to determine the likelihood that it will continue. Calculate the annual debt service to see what is left over for new owner discretionary spending. If you feel more comfortable seeking professional advice, then do so. It might be a good idea to consider the strengths of the business and weigh them against any changes you are considering. And finally, ask yourself if you’re trying to find a reason to buy the business. An honest answer to that question is probably the most revealing research you can do.

Make an Offer. A good offer to purchase should cover many issues, not just price and terms, and should be in writing. An oral offer is never taken seriously. Earnest money deposits also help demonstrate commitment to the sale and the seller is usually more receptive. There are many parts to an offer besides the most obvious such as parties to the offer, description, and price. First, base your offer on something substantial rather than guessing what the seller might accept. It could be discretionary cash flow after debt service does not meet your requirements. If so, consider offering different terms that might increase it to the point that is does. When your offer is based on sound financial conclusions, both parties benefit and the negotiations remain cordial.

Always consider placing a contingency in the offer stating it is subject to review of the records of the business and shall not reveal a material change. Other important issues may include: covenant not to compete, inventory, accounts payable, accounts receivable, consulting agreements, and other considerations you feel are important. Remember, the main purpose is to find out if the seller will accept your terms or counter with a different proposal.

Due Diligence. Due Diligence is the process by which you (the buyer) review the books, records, assets and liabilities of the business, and can begin only after a definitive offer has been agreed to, in writing, by both parties. This is the time you should verify that everything being purchased is as represented by the seller. For most businesses, it can be a relatively simple and rapid process. It can take longer when a bank or other commercial financing is used. If you are using outside advisors, this is a good time to get them involved.

Closing the Transaction. The actual closing can be relatively simple, provided all contingencies have been satisfied. It’s a good idea to have an attorney review the documents on your behalf before the closing date to avoid last minute delays and protect your investment.