For Buyers and Sellers Alike, Chris Bozarth Knows His Way Around Valuing Deals
Chris Bozarth is a certified valuation analyst (CVA) and an accounting services partner. He leads the firm’s accounting and advisory services department. Over the past three decades, he’s worked on hundreds of business sales and purchases. He’s seen it all, from deals that are negotiated without a hitch to those that break down at the last minute. Through it all, he remains upbeat and supportive of his clients.
So what makes for a good deal – one where the sale or purchase of a business works out for both parties? Chris was eager to expound on the topic.
Timing. “It’s important for participants, especially the seller, to begin preparations several years in advance,” said Chris. “When a business is being evaluated for sale, the buyer and his or her advisors – likely including at least one attorney and CPA – will evaluate historical financial information going back several years.
“They are there to scrutinize details of the business’ past while seeking information that will tell them about the business’ future,” he added.
Business Valuation. A key piece of information buyers look for is a valuation of the business from someone who is highly skilled and certified to review these metrics. A certified business analyst understands what to look for regardless of what type of business it is. It could be a private chiropractic practice with one office or a multi-state industrial operation. The CVA will meet the people in management and key employees so they know who to talk to when they have the inevitable questions.
Sellers are typically 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 4-5 years before the business in question will be sold. (See the importance of timing, above.)
Chris had this to say about CVAs: “Their objective is to tell the story of the business: what it is and what it’s potential is. They will also benchmark the business’ current book of business compared to other similar ones, 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. Chris said that almost everything can be negotiated, but too many demands might give the other side pause.
In the end, a good deal is when the buyer and the 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.
Red Flags
Deals are built on trust. It begins with a premise of one party seeking to buy what the other party says it wants to sell. But suppose during the due diligence period the buyer’s team uncovers financial and historical information that indicates the revenue potential isn’t as promised or expected. What if they determine the expenses and debts are larger than previously stated? If credible explanations can’t explain the discrepancies, doubts start to form. Doubts often foreshadow the start of a tense renegotiation or a breakdown in communication.
Chris has also 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.
When choosing a valuation analyst, choose someone with experience, ideally a CPA familiar with Generally Accepted Accounting Principles (GAAP). Make sure it’s someone you feel comfortable talking to and sharing detailed information – good and bad – with all facets of your business.
A good team of advisors will help a client figure out the best course of action even in the most challenging of circumstances.
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