A. From my perspective, a "good" business is 1) one that is established for a number of years. The longer it has been in business, the better. 2) The revenue and profit is either stable or growing. There can be many reasons for declining revenue and profit so each situation has to be looked at to determine the cause. Sometimes it is something that can be easily remedied by a new owner, and sometimes it indicates a failing business or industry. 3) The business is being sold for a "legitimate" reason. These reasons include retirement, serious or terminal illness, divorce, partnership split and an owner relocating. Selling a business because an owner is tired of it or wants something else after a short period of time is usually a red flag. 4) There is no impending obsolescence in a business's products or services. In technical businesses, especially, one must be diligent to be certain that new technology is not around the corner. 5) Having good books and records that clearly show a business's financial performance is critical for a few reasons. It makes it easier for you or your accountant to confirm revenue and profit representations. And, if an SBA or other loan is needed for purchase, the lender will want to see financial statements and tax returns, at least, to determine that the business qualifies for a loan.
When I put a business on the market, I normally create an elaborate Confidential Company Information book that provides you with much information, and will answer most of your questions about the business. All information I receive comes from the business owner/seller, and my job is to organize and compile it in a methodical way for your review. The process of buying a business has some built in protections for you as a buyer regarding sellers representations. First, when you meet and talk with your seller, you will form your own instinctive opinions about the person whose business you may purchase. Second, any knowledge of the business I have gained, I will inform you of. It is my duty and obligation to you. Third, the purchase process has a "due diligence" period for you where you, or you and your accountant can have open access to any business records you want to see, to confirm the seller's representations. This is done after you have reviewed the Information book, after you have met with the seller and toured the business, after you have asked any additional questions and received answers, and after you have made an offer and it is accepted by the seller. At this point, many brokers open an escrow with your deposit on the business. However, I prefer to not incur any other costs for you until you have completed your due diligence, and authorize me to open escrow with your deposit check. You are not expected at any step of your due diligence to simply believe and accept all representations, and this is the point of due diligence---for you and your advisors to gain your own sense of confidence that the representations are accurate and true from your examination of any business records. If you find that any representations are not accurate or true, then you have no obligation to proceed with the purchase, and you are not liable financially or legally. You do not lose any deposit money. I will explain this further to you when the time comes.
In my many years of selling businesses, I have found that if representations are not accurate, it is often because of a mistake or misunderstanding, and not intentional. However, there can be instances where there is intent to deceive a buyer that is very difficult to discern. This is why there is a due diligence period for you. Regardless of anything, you are buying a business based on your own investigation of it, and not on any opinions from any other parties. If you are satisfied with your findings, we can proceed. And remember that if all information proves out perfectly, the future business performance is not guaranteed. That is also up to you, to be able to operate the business in a successful manner, and this depends on your own skills, abilities and background along with the training and transition period you receive from the seller as part of the purchase.