Is This the Right Time for a Business Valuation?

With the effects of COVID-19 clearly in full force throughout most of the United States and the rest of the world, many small, medium and even large business have shuttered or moved to remote work for the near future. The prospect of re-opening may seem dark or non-existent for some businesses. For many business owners, retirement was tied directly to the sale of their business empire. However, considering COVID-19, those retirement dreams may now be in jeopardy. If you were looking to sell your business in 2020, you’re likely asking yourself a challenging question, “how do I value my business right now?”

Valuing a business during normal economic times is complex. Adding in a world-wide pandemic only makes matters worse. But just because something is difficult doesn’t mean it is impossible. United States history has been fraught over the decades with challenging economic times. From the Great Depression to the Great Recession to COVID-19, economic uncertainty is a constant reality. Some businesses are bound to fail, some will struggle, but many will survive. Businesses were bought and sold during previous economic hard times and they can still be bought and sold today. A valuation analyst that understands the foundation of valuation (that buyers buy the future, not the past) can develop a business valuation that adequately factors in and normalizes the effects of COVID-19 on the business.

Planning Today to Find Tomorrow’s Buyer
The reality of our current economic climate isn’t that a business valuation cannot be conducted and that values will not be enough to satisfy a willing seller, but rather that a willing buyer may be challenging to find in area of higher uncertainty than normal. Now may be the time to take stock of the business and make plans to make it sellable. Waiting a year or two longer to sell may be necessary for buying moral to improve. A consultant specializing in this type of planning work may prove indispensable when normal buying resumes. A properly built and executed plan during these next few months may result in higher sales prices than it would have prior to COVID-19.

Transferring Ownership & Tax Savings
While some businesses may choose to take a temporary time out and focus on strengthening the operations for a later dated sale, others may be in a great spot to consider sales and gifting opportunities to future generations. Family-owned businesses that hold ownership in significant hard assets like real-estate or marketable securities may be missing out by not electing to transfer ownership during the current COVID-19 economic climate. With most marketable security prices highly deflated right now, the potential tax savings from gifting “lower valued” assets may be significant. Families looking to strategically transfer wealth while simultaneously minimizing tax burdens should seriously consider acting now. A seasoned gift and estate tax accountant teamed with an expert business valuation analyst could easily provide savings not imaginable a few short months ago.