Let me say up front I do not play myself and am new to guitar building. I am now working on my #11 since deciding to build a few for grandchildren starting back in November. I am a retired professional boat (yacht) builder so do know a few things about quality finishes if not acoustics. In the past six months I have also learned a lot about building guitars!
Not knowing any better, all my builds have been finished with a very high quality marine varnish, at least three coats and usually more, with fine sanding between coats. I think you likely remove at least one half of each previous coat when sanding. I do the insides (only one coat) too before assembly, under the reasoning that this helps prevent humidity absorption. Sometimes I spray, but honestly, I can get a beautiful wet glassy look with just a foam tipped brush too, so lately I haven't bothered to get out the spray gear since I dislike the spray cleanup process so much.
Maybe the varnishing is bad for the acoustic quality, but to my admittedly untrained ear all my guitars have sounded great to me, and the ones who have ended up with them say the same thing. I'm sure I will hear from some people with very good technical reasons why varnish is wrong, but if the ancient masters used it, I feel it should be quite acceptable now for amateur me.
Here's my process: The first coat is a severely thinned back application, meant to penetrate and seal the wood. Then a light sanding down to 400 grit, then re-coat two to four times with a good thorough sanding with 400 between coats.
The varnish: I use Epiphanes high-gloss marine varnish, purchased from Jamestown Distributors in Rhode Island. They offer two to four day shipping in the US. After the first opening and use out of the can ALWAYS strain any further use from an open can. You can buy paint strainers at Home Depot by the box of one hundred for about twice the price of one of the little blister packs of three or five.
Additive: I use 'Penetrol' oil which is widely available through most paint and hardware stores, usually adding about 15-30% by volume. This is a rather thick 'thinner', used for its 'flowing' effect rather than as a thinner. This will cause the varnish to 'flow out' like glass;
The actual thinner: sometimes, especially in warm weather, the varnish will be too thick, even with Penetrol, and tend to sag in places. Use mineral spirits - the real thing, and not that pretend 'no odor' kind to get the right consistency. You will need to experiment a little to find just the right mix. After you learn, you will be able to judge by how the stirred varnish drops off your stir stick. Once you nail that you will know!