Don't let the stars get in your eyes

More often than not, individuals setting out to buy a small business are so taken by the glamour of getting into business that they don't take time to properly investigate what they're buying.

Many small business buyers are first-time buyers.  They are either first-time buyers of a given type of business or it is their first time to be in business for themselves.

Many of these buyers are not qualified to evaluate the merits of a specific business.  They need qualified assistance in determining the price to pay, the feasibility of the business or products, the competition, the financial past performance of the company, and the best way to finance the purchase.

Most buyers don't ask enough questions nor require enough financial history to make a proper decision.  Any business worth buying should have maintained records adequate enough to allow the buyer to review the success or failure of that business.  The inability or the unwillingness of the seller to provide the proper financial information is an indication that the business may be overpriced.

Many small businesses are not profitable enough to give an adequate return on both the buyer's time and money.  If the buyer wants $60,000 per year for working 60 or 70 hours per week and wants an 8% return on his or her $200,000 investment, the business must net $76,000.  A determination should be made before purchase that the business, based on its past performance, can satisfy those requirements.

If you are willing to take a reduced return on your time and money for the sake of self-employment, do so with your eyes open.  Know the facts.