Ask the Advisor – Effects of COVID-19 on Business Valuations
Jason LeRoy, ASA, CVA, CFE, Valuation and Litigation Support Shareholder
Q: What are the potential effects COVID-19 may have on the value of my business if I sell in the next year?
With the extent of the long-term impact of COVID-19 still largely unknown at this point, the valuation process has had to evolve to reflect the new economic realities it has brought upon us.
Valuations by nature are based on projections and estimates, of which future expected earnings and cash flow play key performing roles. Today, many valuators rely on the popular discounted cash-flow method to capture the expected temporary nature of this crisis and assess the value of a business accurately. This method allows special considerations to be given to COVID-19 risk factors impacting the company, industry disruption or growth, cash flow, capitalization rates and much more.
It is important to keep in mind that when valuing any business, it is largely focused on measuring the future economic benefit to an investor. The impact that COVID-19 will have on fair market values is not going to be the same for all businesses. Some businesses’ values will drop significantly, at least temporarily, while others will maintain their pre-COVID-19 value.
Before you go putting your business on the market, make sure you have a preliminary valuation of your business performed so you can be sure it’s the right time to sell to meet your financial goals and objectives. Contact Doeren Mayhew if you need assistance.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
To View this Resource
A quick registration is required to view our resources. You will only be asked to do this one time (unless you don't save your browser cookies).