How to Minimize the Impacts of COVID on Your Company’s Value

COVID Impacts on Business

Kyla HansenKyla Hansen, CPA, CVA

After more than 18 months of living amid COVID restrictions, the light at the end of the tunnel is near. Few are more relieved than business owners. Yet despite the return to “normalcy,” some business owners hear a small voice asking, “Do we really want to go through something like this again? This is probably a terrible time to sell, given the state of our business.”

If you’ve experienced this internal monologue, it’s important to remember: Don’t panic. Economic downturns happen. People will eventually look past this one—and they won’t think twice about seeing it on your financial statement. In fact, a recent study by GF Data shows that multipliers for businesses valued between $10 million and $25 million have largely remained consistent throughout the pandemic. It’s likely your company’s value hasn’t changed much at all.

That said, there are some things you can do to minimize the impact of COVID on your financials. Here are a few actions you could take today.

Document COVID impacts.

While you can’t make a COVID-free balance sheet, you can segregate COVID-related expenses and impacts. Not only does it indicate that you’re on top of things (i.e., in control and trustworthy), but it could also help to mitigate any negative impacts to your company’s value.

For instance, did you purchase a bunch of safety equipment or new technology because of COVID? Did you retain employees who could have been laid off? Did you have to shut down in response to a government mandate? If so, consider asking your CPA to segregate these types of impacts in the back schedules of your financial statement. (Do this now while it’s fresh on your mind.)

Keep in mind: This goes for both positive and negative impacts of COVID. For example, if you received a Paycheck Protection Program (PPP) loan and it was forgiven, the related income shouldn’t increase the value of your company (even though it increases your income stream). Instead, this income should be highlighted and removed from your value analysis, as it isn’t something that will continue into the future nor is it necessarily tied to your operations. However, having excess cash on hand from a PPP loan could increase your business’ value.

Reframe the story.

Some COVID-related impacts can’t be ignored. Highlighting the positives hidden within them can help to paint a better picture. For instance, if you had multiple customers who put their projects on hold, don’t lead with this information. Instead, say “While I didn’t lose any customers, some did put their projects on hold.”

Another example: Imagine you own an IT company that has three distinct revenue streams: hardware, subscriptions, and service. Your overall revenue is down 20%, but this doesn’t apply to each stream. Your narrative might go something like: “No one wanted service technicians in their office during a pandemic, but our renewals remained consistent, and our hardware sales went up by 30%.”

Invest in your business.

When you’re concerned about your financials, it’s tempting to slap a band-aid on certain issues to cut costs. But now is the time to take care of your company. Think of ways you can invest in your business to become more efficient—and ultimately more profitable. This could involve upgrading your technology, streamlining your processes, or even replacing aging equipment.

Remember, every dollar you have in the bank is worth $1, but every dollar you invest in your business is multiplied in value.

Know where you are—and where you’re headed.

Every business is dealing with impacts from the coronavirus pandemic on one level or another. We’re all in this together. As you think about the road ahead, JAK is here for you. From issuing financials to assisting with bookkeeping, we can help you present your financials in the best light. We can also assist in determining a value for your business so you can get insight into your company’s performance—as well as peace of mind. Contact us today.

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