Adjusting For COVID-19 In Business Valuations

The value of your business may face significant changes due to COVID-19. To be blunt, these changes will mean a decrease in valuation for many businesses. Nonetheless, it’s important to keep your business valuation and projections honest. There are a number of things to consider when re-evaluating your business due to COVID-19. Remember that business planning is an ongoing process, and adjustments due to unforeseen circumstances will help you be better prepared for the future.

 

Operations

The most notable change to your business valuation will likely be found in your operations. You may see a reduction in your customer base, a reduction in profits, a decline in your available human resources, supply chain interruptions, government regulations that may stifle growth, and more. There are some rare exceptions to this rule, but even these will see a variety of changes.

 

Take Netflix, for example. The streaming giant has seen growth in its subscription numbers due to the pandemic. They have, however, also experienced a variety of production delays brought about by social distancing and government regulations. Exactly how this has changed the value of their business is complex. (Netflix is publicly traded, so its value is fairly well-reflected in stock prices). Your business’ valuation will be complex as well, so be sure to consider all of the pandemic’s influences on your operations when crunching the numbers.

 

Debt and Credit

One of the most important tools used to evaluate the financial health of a business is the business’ debt ratio. Companies with very volatile cash flows should have a relatively low debt ratio, while companies with consistent income can often keep a higher debt ratio. No matter what kind of company you have, if you’ve experienced a loss of assets or profits as a result of the pandemic, your debt ratio will have increased. 

 

Defaulting on debt can further impact your business valuation negatively – a business that can’t pay its debts is unlikely to pay dividends to its stakeholders. You should negotiate with lenders if you find yourself unable to pay, and you should know which payments to prioritize if you can’t pay them all. 

 

Property

The property your business owns is likely to be one of its most valuable assets. The effect the pandemic has had on the real estate market varies from place to place. Here, in Manitoba, real estate seems to have retained its slow, consistent growth pattern but it may be too early to say for sure. People who own businesses related to the hospitality industry may see the value of their properties fall. Conversely, if you own a cellphone tower you may well see its value increase. The type of property you own will have a substantial impact on how the pandemic affects its value. 

 

This brief post only serves to highlight the tip of the business valuation iceberg. To get a better understanding of the pandemic’s impact on the value of your business, talk to a Winnipeg accountant