Buying a business is much more riskier than most people think or understand. The reason being is that you are buying a lot of “good will” and taking on existing liabilities with very little asset collateral. The idea of buying an existing business is that you are paying the current owner(s) a big chunk of money for their taking the risk, going through the growing pain, developing a “system” and having current positive cash flow that you can start with rather having to do all this work yourself.
Usually, the assets of the business (aside from the real estate which is rented in the vast majority of cases) are small portion of the deal. So if you buy a restaurant, or a coffee shop, or a land escaping company, etc., the price of the equipment (ovens, grills, coffee machines, lawn mowers, trucks, etc.) is way below the price you pay for the business and way above the price you are going to get if you try to sell them as “equipment” or assets.
So, if the cash flow stream started to dry up, you are going to lose all that money you put in very quickly because you have nothing really to back it up. And you cannot even get a loan from a bank because (1) you are a new owner, (2) you have no collateral, (3) you have no account payable.
Over the last few years, I have looked into the finance of over 1000 businesses and analyzed their cash flow. From nation wide franchises to local mom and pop stores, rarely did I find a business that was worth buying, let alone clear financial statements or even “honest” financial statements. In many cases the business owners did not know what their doing. But in more cases it was an intentional misleading statements made by the business owner and the business broker. And if you called them on it, the only answer they have is “that is how things work” or they might even accuse you for not knowing what you are doing, despite the fact that you are showing them that the 2 and 2 is 4 not 8 as they are claiming.
In my experience, the best way to buy a small business is to know the business itself for sometime, to have to domain knowledge about the business and ideally to know the owner of the business and that he/she is honest and good standing member of society. You want the business owner to have a “skin in the game” even after they sell you the business even it was their “reputation”.
It might take you a very long time to find a good business that actually makes you money as a business not because you are working 60 hours a week in it. It might be very hard to wait for that opportunity while you watching you cash being drained, but it is much better than losing all what you have because you are eager to buy a lemon or not having done the right homework.