Quick Read: Valuing Businesses During COVID-19
During these challenging times, there is a great deal of uncertainty about how the future will unfold. In finance theory, including business valuations, greater uncertainty equates to greater risk. Greater risk generally results in lower values.
Recently, we have seen current increased uncertainties manifest themselves in “COVID discounts” pertaining to the values of real properties, businesses and, in some cases, offer to settle litigation and family law matters.
How to quantify the impact of COVID-19 for business valuations with valuation dates during the time of the pandemic remains to be seen and will be interesting to monitor.
Some valuation important considerations were recently canvased in an article prepared by the American Institute of Certified Public Accountants (“AICPA”)*, which included the following:
- The ability of a company to obtain financial relief from lenders or various levels of government;
- The “health” of company’s balance sheet and solvency to assess its ability to survive at lease short to medium-term negative events;
- The possibility of potentially irreversible declines in the revenues of the company being valued or its industry; and
- Valuation methodologies such as an orderly (or even a forced) liquidation approach in cases where the general “going-concern” assumption may no longer be valid.
Business valuators must remember, however, that the hindsight principle generally requires that valuations with valuation dates prior to the onset of the pandemic should not reflect its impact thereon, as hard as that may be.
Fore information regarding valuations during these challenging times, please consider reviewing the AICPA article linked below or feel free to contact us to discuss any particular valuation issues you may have.
Please do not hesitate to call or email us if there is anything we can do to help you or your clients. In the meantime, best wishes to you, your families and your colleagues for health and safety. You can contact Wayne B. Rudson, CPA, CA·IFA/CBV, ASA, CFE ([email protected]) or Vincent Lam, CBV, MAcc ([email protected]) at 416-598-4500.