There is quite a bit of uncertainty with businesses given the global coronavirus pandemic. This uncertainly also means that a company’s value has been impacted since uncertainly creates risk and increased risk lowers value. What is this doing to a business owner? What are they thinking and how are they navigating through all of this?
The ASL Valuation Team was in the midst of valuation projects when the ‘shelter in place’ order went into effect in the Bay Area. While these projects have continued, we have engaged in more detailed conversations with each of these business owners about what is going on, what they are doing in response to the coronavirus, their outlook going forward, etc. While circumstances are changing quickly and business confidence will decline as time goes on, the one word that we would use to describe business owner sentiment is, optimism. This was not what we would have expected from construction, engineering, software, hardware, e-commerce, real estate, retail, or even tourism companies. While preserving employees/teams and conserving cash flow is at the forefront, they are all confident that things will eventually return to normal.
While some industries may rebound quickly, provided the ‘shelter in place’ orders are lifted soon and business activities resume, others may face significant challenges that will have a much more lingering negative impact. Startups, restaurants, gig workers, and the hospitality industry are expected to be hit the hardest.
What about valuations dated before the pandemic, such as December 31, 2019? These valuations are often performed in late-Q1/early-Q2, when all the year-end information is available. This information includes projections for the next several years. Although many of the standards state that only information that was “known and knowable” should be used, it is going to be very difficult for an owner to ignore the state of the coronavirus pandemic when building projections.
We will continue to monitor the situation and keep you up-to-date. In the meantime, here is a list of COVID-19 valuation-related resources that will help you stay informed:
- Business Valuation Resources (BVR) COVID-19 Resources
- BVR – How to Deal With COVID-19 for Dec. 31, 2019, Valuations
- BVR – Thoughts and Advice on Valuations Amid the COVID-19 Crisis
If you have any business valuation-related questions, please contact Jeff Faust, CVA, Director of Valuation Services at email@example.com or 408-377-8700 x232.