This is actually quite a complicated topic i would think. It would be very hard for you to gain the full understanding of what needs to be accounted for just from what people can reply with on the forum here. Especially since i am sure that people who do this professionally would have a great deal of business education behind them.
Though i will try and give you some areas that you may want to look at. The main thing to consider is what is the Value of the owner, if you are purchasing a business just about any business, can it be run without the current owner. A lot of smaller businesses may have a number of employees but in many cases everything is held together by the owner and in some cases cannot run without the experience he has. So the very first thing i beleive that you need to do is to make sure the business can be run without the current owner or that you can sufficently be trained to operate the business yourself.
the second thing to consider is property, if you purchase a business you need to make sure what property is included, the worst thing that you can do is look at a business and go this property is worth 500k and work it into your costs and then find out once the deal is settled the building is leased. So you need to find that out plus also if the building is leased what it is leased for and if the cost of the lease will go up in any way. The building and lease could be one of the biggest businesses expenses so you need to know about this up front before you pay for somthing that isnt included.
Again the same deal goes for machinery and furniture. You need to make sure what is included, and work out a value for the equipment, again if it is leased then you should probably not put any value in the purchase price for it as you are going to be paying every month for it. Also this would count for computers, office equipment, furnitcure and vehicles.
Find out all assets that are part of the business and find the value which you beleive is correct.
These items should make up the majority of the cost of the business as they are all fixed assets anything that isnt leased will have a value which you need to figure out. This is the area that you can have a great breakdown between you and the seller. You may think that the old van they use for deliverys is worth 3-4k but the current owner may think it is worth 8-10k which can easily become a big factor in your cost estimates.
Finally in most cases you need to allow a part of the purchase price as goodwill which should be based on earning and possible future earnings to find a figure you are happy to pay and the current owner happy to accept.
The value of the business compared to what the asking price is can be quite large, a friend i know was looking to buy 2 fastfood after spending a couple of weeks looking over all the figures and assets and such the finally decided that even including a fairly large portion of good will since previous figures were good and the future projections were rather conservative. He offered them AUD$595,000 but they didnt accept it not wanting anything less then about $750,000. This is a case were the current owner saw value which wasnt there as everything was leased and the only thing that was of much value was the stock on hand and the name of the business which 595,000 would ahve been a very good profit for the owner compared to the start up.
Anyway i hope that this gives you some help and hopefully some other people can add some more insight then i have been able to give. But i would definatly spend the money to have a professional valuer, doa valuation before i paid anything out on any business.
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