The impact on business valuations as a result of COVID-19
COVID-19 came and felt like it was here to stay. With numerous business closures, furloughs and lay-offs, one might wonder if we can ever recover. The good news is, some economists project a steady recovery as cities begin to loosen restrictions and businesses become operational. That said, as a small business owner, you might be wondering how this affects your valuation.
Here’s what we have gathered regarding COVID-19’s impact on business valuations and how we foresee things moving ahead.
Option #1 – V-shape
In specific situations where your small business is located in a state or city with very few cases, the businesses have likely been able to reopen. In this case, the economy will likely bounce right back – seeing as the closures were short-term. The best advice is to keep month-to-month detailed records of your financials.
Option #2 – Economic Recession
In a scenario where the US economy enters a recession, many businesses may immediately be listed for sale. Unfortunately, for businesses that have been unable to work, valuations will inevitably soften. Catering companies, for example, have been unable to work in many cases but some have found creative ways to generate income which would help them maintain value. That said, business valuations may have more narrow calculations because of COVID-19. Much like the economic recession of 2008-2009, businesses measured their worth quarterly and not annually. This will likely be the trend again, to measure growth in a smaller margin.
Option #3 – Increased Prices
For businesses that seem to be recession- or crisis-proof, they are going to be valued much higher than before the pandemic. If they were able to survive the changing economy and, in some cases, thrive, they will be highly coveted by potential buyers.
Business valuations are still fully impacted by the national economy, specific industry, and local markets. The effect of the pandemic on your local market will certainly determine valuation for your small business. Thankfully, Transworld Business Advisors Houston has expert advisors to assist you when determining the value of your business. If you are hoping to list your business for sale now or in the coming months, do not hesitate to contact your local experts at Transworld Houston today.