Art of Accounting: Understanding the Dynamics of a Situation

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IMGCAP(1)]A client wanted to buy a business in Birmingham, Ala., and I went there with the company’s CFO to review the books, do some due diligence, kick the tires and negotiate a deal.

The business was on the cusp of super success, but they ran out of money and my client was going to buy the company, provide working capital and retain the owner to run the business.

The business was very capital intensive, with humongous equipment that was purchased new and completely underutilized. The owner started the business in his garage and built it up to a good size and was in tears discussing the sale of his “baby.” Our analysis indicated that the real issue was the lack of a sales force. Well, my client’s business was a sales organization with offices in 15 states. The CFO and I figured out that we could make a deal where my client could become the exclusive sales organization, and the owner could keep his baby.

The amount of capital needed was minimal because the sales force was already in place and this would have been an added product. Further my client did not have to get involved at all in the production process other than to make sure delivery schedules were met. The “partnership” was a successful collaboration between the two organizations for many years.

The takeaway here is that there is more than one way to get a deal done. When negotiating, it is important to understand the dynamics of what each side wants and why they want to do it. That requires asking a lot of questions and then listening. The more you talk, the less you will find out. Once you know all the reasons, solutions usually present themselves pretty easily.

In this case, the solution became evident once we had all the input and were able to get to the core of the matter.

Edward Mendlowitz, CPA, is a partner in WithumSmith+Brown, PC, CPAs. He has authored 20 books and has written hundreds of articles for business and professional journals and newsletters plus a Tax Loophole article for every issue of TaxHotline for 27 years. Ed also writes a blog twice a week that addresses issues his clients have at He is the winner of the Lawler Award for the best article published during 2001 in the Journal of Accountancy. He has also taught in the MBA graduate program at Fairleigh Dickinson University, and is admitted to practice before the U.S. Tax Court. Ed welcomes practice management questions and he can be reached at WithumSmith+Brown, One Spring Street, New Brunswick, NJ 08901, (732) 964-9329,

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