While a CPA might be a good idea, the bulk of their business is dealing with
the accounting needs of ongoing businesses not providing opinions of value.
My employer uses business valuation professionals to assess the value of a
business and comply with SBA regulations.

The valuation process implements certain methods “discounted cash flows”,
“sales comparison”, and “sales/earning multipliers” to come up with
an estimate. While a good CPA could do this easily, I would feel more
comfortable with an estimate of value from someone that has done hundreds of
these valuations instead of a handful.

Google "business valuations" or "business appraisals" for more information

I don't have much of an idea on this but I think that it is better to
establish a new business than purchasing an existing one. There is only one
benefit in purchasing an already established business, that is you don't not
have to do the initial work or secure the first customers. But otherwise it
has only cons. Moreover, what was the real reason of selling the business is
also a point to be pondered over.

I think the points you received so far are really good.
I only want to add that you should consider only businesses that you:
1. understand the business model
2. maybe have some previous experience in that business area
3. make sure it's something you really enjoy doing

Also, think about the reasons you're doing this. Sometimes starting a new
business from scratch and watching it grow gives you a great sense of
achievement.

Three things about purchasing a business, although the size (meaning gross
revenue, number of employees, etc.) of the business makes a big difference in
each of the three things I am about to write:

1. Due diligence: That means you review the books and make sure there is one
set. Don't be naive. Unfortunately, a lot of business keep a second set of
books. That should be a huge red flag because, no matter how much the
business may seem profitable or a good "buy", you are playing with fire.
Cutting corners to make money shouldn't make the business attractive to you.
It should be a big warning sign.

2. Reason for the sale: You know how rare it is for a profitable business
owner to sell his or her business? Pretty rare. People don't sell an
appreciating asset as a general rule. Find out the motivation for the sale.
Not only will it help you gauge how much negotiation room you have (if the
seller is desperate, you can use that) but it will also help you figure out
if you are stepping into a land mine with the purchase.

3. Lawyer: I know, I know, you dread the thought of having one help you,
right? I think it's rule number 1, especially if the transaction is even
remotely complex. You don't want to know how many business deals go bad AFTER
the contract is signed.

I could probably give you 10 more tips but those are my top three.

One of the pros of purchasing an existing business is that you don't have to
do the hard work of actually establishing the business and securing the first
customers. That said, if the business doesn't have the best reputation, is
losing sales, or has another issue, you inherit those problems. As SeattleCPA
mentioned, you need to have a CPA and an attorney involved from the beginning
of your negotiations. They can take a look at the business's books, lease
agreement, and other documents and hopefully catch anything that might
indicate you should walk away. If the business owner is not willing to give
you at least three years' financials, that in itself is a red flag.

You may also want to visit with a counselor at a small business development
center or a SCORE office. Their services are free and they can help you
through the purchase process.

I would suggest you try to find a local, experienced small business CPA who's
helped people successfully (and maybe especially unsuccessfully) buy a small
businessese before.

Quite honestly, I rarely see this work well for the buyer. Sellers have an
uncanny ability to sell when it's a good time to sell (and a poor time to
buy).

Buyers who do well are often experienced small business people who know the
industry and are simply expanding their customer base, sales territory, etc.

Sorry to be a wet blanket. I don't want to be that. But gosh you got to be
careful when doing this. Often, it ends in headache and heartbreak.

Steve

Hi, Check out this blog post (http://www.sba.gov/community/blogs/community-blogs/business-law-advisor/...) about buying a business for some legal insight. You can also check out our section on SBA.gov that discusses buying an existing business (http://www.sba.gov/content/buying-existing-business). Good luck!