Giving Diligence Its Due

To truly determine the credibility of a company, take the time to do it thoroughly. "You need to skin the onion and take a closer look," says Ferraro.

Don't Get Emotional

More often than a larger company, when a small business sees the proverbial carrot dangling, it tends to forgo the essential details in its eagerness to take a nibble.

The seller can be enamored by large business and enormous growth, says Ferraro, but there may in fact be no contracts behind all the hype.

"Don't get passionate about the business [during the due diligence process]," says Parker. "You must gear your passion toward discovering everything that you can about the business and nothing else."

Then there's ego to contend with: "You're talking about a big boys and girls club," says Ferraro. "Everyone at the table is supposed to know better."

Due diligence often seems like a sign of weakness to buyers, who want to convey the image that they can run a better business than the current owner, but avoid getting a big head and you'll be the one looking smarter.

Fine-Tooth Financials

Unfortunately, there are many creative ways for companies to hide liabilities and inflate revenue, so never take financial figures at face value.

"Numbers don't lie; people do," Parker points out. Financials should be examined through an investigation of the entire business and must include the assets, systems, employees, competitions, contracts (legal and corporate), sales and marketing strategy and the industry as a whole.