The year is nearly over, but the effects of COVID certainly are not. As a business owner, you are probably wondering what else could be affected by the constant back and forth of infection rates, re-closures, and other business-related government policies. There is one item that remains true, no matter what happens next, business valuations are completely necessary to run and/or sell your business. That said, how has COVID impacted business valuations?
How is your business doing?
Every industry and every business were affected by COVID differently. You might be surprised to hear that this uncertain season actually helped some businesses boom. Think about it, what do you think happened to companies focused on cleaning products, hand sanitizers, and other disinfectants? At the same time, zinc and vitamin C sales skyrocketed. Sign companies are busier than ever because every other business has needed signs reminding people about social distancing, masks, etc. In the way that the restaurant industry was very severely hurt by the shutdowns, some businesses thrived.
Businesses can now be placed in one of four categories:
- 1. Distressed
- 2. Business as usual
- 3. Thriving
- 4. Struggling, but expected to recover
A distressed business is one that remained highly unprofitable and has increased owner debt. Like the name suggests, a “business as usual” business is one that continued to operate normally and remains sufficiently profitable. Similarly, a struggling business may have been negatively affected by closures, but unlike a distressed one, they are expected to recover gradually. Finally, a thriving business is one that benefited from the crisis – i.e., increased 2020 revenue and earnings.
Post-COVID Business Valuations
A business broker will be able to categorize your business appropriately and advise on best practices moving forward. In many ways, COVID has changed how business valuations are calculated. In the past, quarterly profit earnings and income statements came into play. The business was evaluated for growth over an extended period. Meanwhile, during this unprecedented season, businesses can share growth on a month-to-month basis, to show how creativity, hard work, and some operational changes have successfully helped the business grow or stay afloat. Potential buyers know COVID had an impact and are now just as interested in your recovery plans as they are in your overall profits. Why? They want to ensure the business can survive future crises.