Are revenues stable or growing over the past 5 years?
Is net income stable or growing over the past 5 years?
If sales or net income have not been stable or growing; what is the reason? Can the slide in revenues/profits be corrected by you as the new owner? If not, then you should probably pass on the deal.
There should be low capital requirements or capital expenses (example: no new equipment needed; facilities adequate for operations and no other costly improvements or investment needed in order to operate the business). If it requires putting a lot more capital into it ... you may want to pass on this deal.
How is the business affected by local changes in the economy?
Will the next five years be different if there are changes in the local economy?
Are any key management or employee positions occupied by members of the family or close personal friends of the owner that you will have to fill as the new owner? This may or may not develop into personnel problems once you are the owner. Fore-warned is fore-armed.
What are the current practices and procedures for hiring, firing, advancement, and promotion? Do they conform to local, state, and federal regulations? If they do not then this is a negative. Make sure that you don't inherit any problems.
There are literally dozens (hundreds) more due diligence questions that should be asked as part of your evaluation of the business. You might want to visit your library to find books on how to buy a business or visit a local book store and buy a book that covers that topic. Educating your self is part of preparing to make a good deal and not do a bad deal that you will regret later on. Or search online for "help buying a business" or "business due diligence" will probably come up with additional information that might be of help to you.
Good luck with your acquisition plans; let us know if you have other specific questions and how this progresses for you.
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