What are the differences between a business appraiser, CPA auditor, and a due diligence expert?
It has been said that you cannot judge a man until you have walked a mile in his shoes.
Over the years I have trod the business path--for much more than a mile--in the role (if not in the footwear) of business appraiser, CPA and due diligence expert.
And since setting up Due Diligence Assistance for buyers, I have gained a new respect for what knowledgeable CPAs have to go through when assisting their buyer clients in investigating a business. With very limited information they must determine if the books are "cooked" (containing false and incomplete information) and if so, by how much.
The CPA may find him or herself in the most awkward position of being informed--usually by the seller--that the business books are not completely accurate because they understate the company's earnings--a fabrication intended to reduce the seller's tax liability. Most accounting professionals who listen to that explanation have to wonder if the seller--who now has admitted to being dishonest--is also attempting to deceive the buyer by claiming the company does more business than is shown in its records.
Meanwhile, the appraiser often is asked to take the information provided by the accounting professional and use it to establish a "fair market value" on which the buyer can rely. The competent appraisal professional will, of course, analyze the macroeconomic factors--including industry trends, status of the economy and competitive environment--plus the capacity of the company (given the condition of its assets, the ability and loyalty of employees, and effectiveness of its marketing programs), to continue functioning in the future as it has in the past.
And what does the appraiser make of the figures furnished by the CPA who is analyzing the company's books and hearing about some manipulation by the seller?
The appraisal professional will have to issue a report with a disclaimer, stating either that: 1) the value is based on the figures supplied by the accountant--figures that should be verified, if possible, by the buyer; or 2) the value assumes the validity of income information which has been claimed, but has not been documented, by the seller.
This is the puzzle, not yet solved, that often is delivered to the due diligence advisor, along with the request that he, or she provide a solution.
If the CPA is a "numbers scientist" and the appraiser is a "theorist" who understands how to apply principals and formulae to specific situations, the role of the due diligence expert is to be the "professional investigator." This is the person whose skill is focused on taking all this information, mixing it with his or her detective work, and providing a sensible interpretation of what was learned, so the buyer can make an intelligent decision about whether or not to buy the business, and if so, for how much.
Among the questions to be pondered by the due diligence pro is the validity of the seller's stated reason for wanting to turn the business over to someone else. In my experience, there often is another reason--one that is not stated. And part of the job of the person conducting due diligence is to try to learn what's really going on.
Accurate answers to this question can shed a new light on the situation and help a buyer to determine--along with the other information provided by the due diligence advisor--if this really is a business worth buying, and if so, at what price.
About The Author: Willard Michlin, CPA offers business buyers Due Diligence Services (Second Opinion, Offer Assistance, Final Due Diligence) when they are thinking of making an offer on a business or in the process of investigating a business purchase. Serving all of Southern California. He has written numerous articles on the due diligence process and can be reached direct at 805-428-2063 for more information and an appointment.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Peter Siegel, MBA, BizBen Founder, Lead Facilitator - ProBuy, ProSell
Founder & President Of BizBen.com (since 1994) & BizBenNetwork.com. I am the Lead Facilitator for the ProSell & ProBuy Programs on both platforms. I consult daily with business buyers, owner/sellers, and intermediaries daily about buying and selling businesses. Reach me direct at 925-785-3118.
|Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence
Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.
|Helen Yoo, New Century Escrow - Escrow Services In Southern California
New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.
|Diane Boudreau-Tschetter: Escrow & Bulk Sale Services - CA
California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.
|Shalonda Chappel-Pilgram: Escrow & Bulk Sale Services - Southern California
Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.
|Ryan Clark, Business Broker: Southern California
The Veld Group provides a refreshing approach to Business Brokerage, Mergers & Acquisitions and Business Consulting and Valuations. From Your Street to Wall Street, we cater to Main Street Businesses as well as more complex Strategic Firms and Start-Ups. Phone Ryan, Business Broker at 310-652-8353.
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PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.
|Lee Petsas, Business Broker - Southern California Area
UBI Business Brokers has been successfully selling businesses in Southern California since 1965. Our Agents have over 100 years of experience in selling small to medium size businesses throughout Southern California. We service Orange County, Inland Empire, San Diego. Phone Lee at 714-363-0440.
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