How valuation analysts help secure win-win deals for buyers and sellers alike

So what makes for a good deal — one where the sale or purchase of a business works out for both parties? For starters, timing is critical.

It’s important for participants, especially the seller, to begin preparations several years in advance. When a business is being evaluated for sale, the buyer and his or her advisers — likely including at least one attorney and CPA — will evaluate historical financial information going back several years. That will tell them a great deal about the company’s future, which is essential to developing an accurate business valuation.

That job falls to certified valuation analysts. CVAs are specially trained to understand what to look for regardless of what type of business it is. It could be a private medical practice with one office or a multistate industrial operation. A CVA will meet the people in management and key employees so they know who to talk to when they have the inevitable questions.

Sellers typically are the ones tasked with obtaining the initial business valuation. However, buyers often also secure their own valuation. Ideally, for business sellers, a business valuation should be completed about four to five years before the business in question will be sold.

The CVA’s objective is to tell the story of the business: what it is and what its potential is. Part of that involves benchmarking the company’s current book of business compared to other similar firms, to get a sense if the business is maximizing its potential or underperforming based on the industry and markets, economic trends and influences.

Keep in mind that buyers and sellers enter negotiations with very different end goals. The buyer may only want one part of a business and is content to close or sell the rest. The seller may have concerns about key employees or their own role in the transition post-sale.

Almost everything can be negotiated, but too many demands might give the other side pause.

In the end, a good deal is a “win-win,” one in which the buyer and seller each get what they want without feeling like they’ve been taken advantage of. If both sides compromise to get to the finish, that’s also a good sign. Deals are built on trust. The greater the trust, the better the deal.

But what happens when that trust breaks down?

For example, suppose during due diligence the buyer’s team uncovers financial and historical information that indicates the revenue potential isn’t as promised or expected, or that expenses and debts are larger than previously stated. If there are no credible reasons for such discrepancies, doubts start to form, and a tense renegotiation ensues.

As a CVA and an accounting and advisory services partner at Weiss & Company LLP in Glenview, I also have seen deals where buyers or sellers didn’t plan far enough in advance. Circumstances change and — boom! — they just want to sell and are willing to sell for a lower amount, or they want to purchase a business even if they overpay.

All the more reason to retain a competent CVA with whom you feel comfortable sharing detailed information — good and bad — with all facets of your business.

• Chris Bozarth is a certified valuation analyst (CVA) and an accounting and advisory services partner at Weiss & Company LLP accounting firm in Glenview.