Oftentimes, business owners go down the path of selling their business ill-equipped.

Perhaps the owners have built a thriving business and rightfully pat themselves on the back for their achievements, but what have they truly built? More importantly, what is its precise value to a potential buyer? In other words, what is the price a buyer should be willing to pay to acquire the business?

The exact value is elusive and complicated to determine. When business owners get even the slightest hint of an interest in exploring sale options, they should engage a valuation expert to get a thorough, unbiased determination of value.

Who is the valuation expert?

Customarily, it would be a certified public accountant that has specialized training in business valuations like the accredited in business valuation designation, or ABV CPA.

These professionals often are engaged to provide a thorough valuation report. But equally important, they are often called upon to defend their valuations when, for example, the client is audited by taxing authorities or when acting as expert witnesses in court proceedings that hinge on business valuations.

Timing is critical.

Expect that the valuation process will take a few months to complete. Not only will the ABV CPA need time to produce the valuation, but the business owners likely will need time to put together all the information requested by the ABV CPA for review.

Additionally, sometimes the business owner needs to engage their own CPA to produce the information responsive to the ABV CPA. This also adds to the time to complete the valuation.

After the business owner provides all the requested substantiating information, then plan on the ABV CPA taking a month or more to review and generate the valuation. That’s why it’s important that the process starts when the first hint of interest in selling arises; the process takes time.

Might your own CPA provide the valuation?

Maybe. If you have a longstanding relationship with a CPA, feel free to ask about their ability to provide a valuation similar to that of an ABV CPA. If your CPA is interested, they also should be prepared to defend the valuation.

However, more often than not, the existing CPA feels comfortable handing off that work to the ABV CPA both because of the additional expertise provided and the fact that the engagement with the ABV CPA is limited in scope, meaning the current CPA is unlikely to lose your long-held business.

What does early engagement of the ABV CPA provide?

Not only does the business valuation provide the seller with a more thorough understanding of the value of the business for sale negotiations, but it can also provide insight into important business changes the owner can implement to increase the value of the business prior to sale. It provides an opportunity for the owner to begin to cut out the fluff to showcase a more accurate income stream from operations.

Maybe the owner or family working in the business should have their salaries modified to reflect reasonable wages. Maybe company expenses should begin excluding owner—call it, gray-area—expenses that are often liberally deducted in small businesses and affect the bottom-line value of the company. Maybe it helps to identify and adjust budget items to match industry expense expectations more closely.

The bottom line is that it can provide the tools to help the owner understand how to drive the business valuation higher over time, and importantly prior to opening the books to a potential buyer.

Will the sale price be the valuation?

A business valuation won’t necessarily align with the final selling price of the business. This is a common occurrence when predictions meet the realities of the marketplace. Sometimes a buyer will pay more because of a strategic interest in the business. Sometimes the buyer pays less. Nevertheless, the valuation provides the seller with a more accurate and honest assessment of the business’s value.

The seller also should understand that a savvy buyer often will go through a similar process with their own ABV CPA to determine the offer price. By starting the process early, the owner will be in the best possible position to begin negotiations with any potential buyer, armed with an understanding of valuation methodology as well as the specific valuation for the business.

 Beau Ruff is an attorney and director of planning at Cornerstone Wealth Strategies Inc., in Kennewick, Washington.