Plan on making a down payment of 30% to 50%. Businesses typically require a higher down payment than houses. Ask the seller for financing of the remaining amount. You can also borrow from a bank or relative for much of the down payment.

Ask about why the current owner wants to sell. The most typical answer is retirement. If the owner gives a reason that does not seem to be due to personal circumstances (retirement, disability, major personal tragedy, etc.) then you should carefully consider if there is some other reason that may affect the business cash flow. For example, if the owner says that he or she is simply tired of it and wants to take a job at a Fortune 500 company, you should be wary. Few self-employed people give up the feeling of freedom to go to work for others. Perhaps the business takes an excessive amount of personal stamina to run, or the current owner is trying to make it look profitable by not hiring enough employees - a savings which you may not be able to duplicate.

Once you arrive at a final purchase price, you still have not fully determined what you are ultimately paying until you factor in the tax consequences. If more of the purchase price is allocated to equipment and inventory, you will write off more of the purchase price faster. However, this will prevent the seller from claiming favorable capital gains rates on intangibles (which can only be written off by you over 15 long years). So how the components of the purchase price is allocated can make a difference in what the business ultimately cost you. By the way, the allocation of the price is made on IRS form 8594.

Nearly always, you want to buy only the hard assets of the company. Let the seller keep his own checking account cash, receivables (some of which may not be collectible, so you don't want that problem), all liabilities and debts (unless the seller has a fantastically low loan rate that is assumable), and the seller should keep his or her own corporate stock (because you don't know where its been, and what unstated contingent liability might be lurking out there).

On the day you close, do a final walk-through and count items to make sure you get what you are paying for. Often, the purchase agreement includes a few months of seller on-site advice to help you become familiar with the operations, customers, employees, etc.