The Effect of COVID-19 on Business Valuations

It is no surprise that the COVID-19 pandemic has created tremendous uncertainty regarding the current value of businesses.  Earlier this year, our country witnessed major stock indexes lose more than 20 percent of their value, the World Health Organization declared a worldwide pandemic, and the President of the United States declared a national emergency.  In the months that have followed, our economy and business community have weathered extremely tumultuous times.  All these factors would make any business owner question the value of a business. 

It is important that business valuations account for known or knowable circumstances, as of the date of the valuation, that could affect its value.  Whether you are a business owner in the process of estate and gift planning, considering a sale or a merger, going through a divorce, or an investor, the global pandemic is most likely going to have a significant impact on your business’ future.

Important considerations for determining your business’s value during this time include:

  • Has your company received any government stimulus funding?
  • What was Covid’s impact on cash flow and will it continue?  Are there any additional risks?
  • Have you been faced with tough decisions such as employee furloughs or decreasing your workforce?  Will you be rebuilding your workforce?
  • Have you been challenged to reinvent the products or services your business offers?
  • Are you confident in your current management team in the current environment?
  • Have you considered a detailed strategic and projected a financial plan forward for your business?
  • Has the business’s access to capital changed?
  • Is your company experiencing a material change in the way it does business due to COVID?

Consulting with a certified valuator can be crucial in determining the current value of your business based on these and other factors.  The valuator also needs to assess outside factors that impact the value of your business, including economic and industry data both short term and long term.  While some companies and industries have seen significant positive impacts from COVID-19; many others have seen devastating hits to future growth prospects and some to the point to which they may never recover to pre-Covid levels.  Furthermore, the impact of COVID-19 on cash flow has caused many companies to restructure just to continue operations. 

A valuator brings significant insight and knowledge to any business valuation situation.  Valuations can often bring clarity to an otherwise undetected challenge facing any business.  Discovering these challenges and opportunities with a second set of experienced eyes can help set a clear path forward during uncertain times.  Knowing how to maximize your cash flow in today’s environment and evaluating key factors play an important role in the business’s future.

Some other key benefits that a valuation can provide are:

  • Increased Knowledge of Business’s Value Drivers
  • Understanding of the Business’s Goodwill
  • Broader Understanding of Resale Value
  • Risk Assessment Facilitation
  • Strengthened Bargaining Power
  • Increased Stakeholder Assurance

Having a knowledgeable expert when it comes to these sensitive topics is crucial.  Let Crosslin consult with you how these events may impact your business or investment values and be a critical part of your advisory team.

Please contact a member of the Crosslin’s Forensic/Valuation Services Team by e-mailing here or calling (615) 320-5500 with any questions you may have.  As always, we appreciate your business and are always here to help!