This story first appeared in the March 2013
issue of Startups
. To receive the magazine, click here to subscribe
You can't really be sure ever, but of course you want to work with an established business broker, see a business plan, see past financials including actual reports to the IRS (people are less likely to fudge the truth on tax forms) and hopefully audited financials. The business broker should be able to help you see comparisons of other transactions of the same type.
Businesses aren't worth what the owner asks for them, they are worth what the buyer is willing to pay for them. If those are the same amount, you have a deal, otherwise, make an offer.
I have a related post
on my blog at blog.timberry.com from January of this year and there is a related post
on Anita Campbell's Small Business Trends blog from yesterday. You can also search the web for "business valuation."