Hire an accountant to examine his books, accounts, bank accounts, and records.
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Tax returns are a good indicator of how a business is doing. Ask for copies of tax returns directly from the seller's CPA. A CPA is a licensed professional who most likely will not risk their license by providing false documents.
Have a business appraiser or a CPA with business valuation experience review the books a d records of the seller before agreeing to purchase the business. Do a UCC1, judgement and lien search against the seller, and if the seller is a corporation etc, make sure the search is thorough.
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You would have to get a certification from the company's auditor that the books and records accurately reflect the conduct of the business. You can ask the seller to let you bring in your own accountants to conduct an audit and any other inquiries they deem necessary, and have them certify the results to you. You should be represented by a commercial attorney with a good exposure to sales and tax questions.
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