1. Failure to verify all data. Most buyers accept all the information and data given to them by the seller at face value, without verification. Thorough due diligence is critical.

2. Buying on price. Buyers don’t typically take into account return on investment (ROI). If you are going to invest $200,000 in a business that returns a five-percent net, you may be better off investing in stocks and commodities or putting your money in municipal bonds or your local bank.

3. Cash shortage. Some buyers use all their cash for the down payment on the business, though cash management in the startup phase of any business, new or existing, is fundamental to short-term success. They fail to predict future cash flow and possible contingencies that might require more capital. Further, there has to be some revenue set aside for building the business via marketing and public relations efforts. If you have $500,000 to invest, make sure you don’t invest the entire amount. Although figures vary from industry to industry, a common contingency amount is 10%. You should also set funds aside for working capital – typically enough to cover three months’ of expenses.