Q: I own a restaurant that is dependent on word-of-mouth in a seasonal area, and I would like to take my concept to a high-traffic area within the city. I have found an existing restaurant willing to sell for $50,000. The original asking price was $75,000. The concept and food is completely different and would have no bearing on my menu. The equipment has a depreciated value of between $15,000 and $20,000 so I would be paying about $30,000 for the location, lease, and some existing traffic flow. Is it worth buying this location? Or should I find another location to build from scratch?
--D.B., Scituate, Mass.

A: It is imperative when purchasing any business that you do some due diligence before signing an agreement. Get the answers to several important questions, including: How successful is this business? (Don't take the current owner's word for it. Look closely at the company's books yourself or have your accountant do it.) Why are the owners selling? If the business isn't successful, why not? What would it take to make it successful -- and are you willing to do that?

If you will be assuming a lease, investigate its value. If it's below market  -- with reasonable terms in a high-traffic area -- the real value of the business may be in the lease itself. Talk to a real-estate broker, or make some calls yourself to other properties that are for sale. Find out what the going rates are and how this one compares. You don't want to assume a bad lease, even if you get the business for next to nothing. That said, $50,000 sounds like an extremely low price for an existing restaurant, particularly if the location and lease terms are good, and the square-footage meets your needs. Remember that a space that's too big can be just as disastrous for you as one that's too small.

Ron Gorodesky, president of Restaurant Advisory Services in Plymouth Meeting, Pa., says that trying to build a restaurant from scratch in virtually any city is likely to cost more than $50,000. Even if you have to make some changes to the building and do some mechanical refurbishing, it's usually cheaper to purchase an existing space.

So find out when the restaurant is supposed to be busy, and go there to see for yourself whether it is, Gorodesky recommends. If it's a dinner house, and it's not packed on Saturday night, there's a problem, he says. Likewise, if the restaurant is in an urban area and is primarily geared toward business lunches, make sure there are plenty of suits there on weekday afternoons.

Even if the concept and menu are not particularly successful -- or the restaurant currently suffers from bad management -- you may still be getting a good deal if the location and lease are favorable. That's especially true if you're going to put a completely new stamp on the place. Chances are, says Gorodesky, the old customers won't return anyway if the place has a new menu and name. When you reopen, you'll be creating a trial period that will bring new diners in to see what you're all about. They will come back again and again if you give them quality food and service at a price they feel is well worth it -- whether their tab comes to $75 or $7.50.

Have a question about running your business? Ask our small-business experts. Send us an E-mail at smartanswers@businessweek.com, or write to Smart Answers, BW Online, 46th Floor, 1221 Avenue of the Americas, New York, NY 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.