How To Preserve Your Company's Market Value Post-COVID-19

by Dave Driscoll

Every business owner is experiencing sleepless nights wondering how to proceed as government and health restrictions affecting their business begin to relax.

Owners must address significant issues including:

- Resolving operational and logistical challenges of bringing back employees amid social distancing.
- Providing a heathy and safe environment for employees, clients, and customers.
- Resuming service or production safely.
- Managing the financial impact to the business and securing the necessary financial lines of credit to continue the business while facing an uncertain future.
These issues are obviously top of mind and a number 10 on the urgency scale.

As your recovery plans begin to take shape, I recommend you document your business’ journey in detail, from the beginning of the pandemic all the way through recovery.

Our minds are extraordinary at protecting us from the stress of crisis. The emotional and physical pain created by the virus in our lives will abate over time, along with the memory of what happened while in the trenches. Right now, it’s hard to believe that the memories of this crisis will not remain vivid, but, like all traumatic memories, they will eventually fade and even become distorted. Documenting how you managed to survive throughout the profound impact to your business will be exceptionally valuable in supporting the future value of your business.

Historic operational and financial performance are the foundation for determining the value of most businesses. Covid-19 will be defined as “force majeure,” an act of God, a pandemic outside the control of the business…and certainly an unavoidable situation that most crisis plans did not fully anticipate.

Owners should take two important steps to defend future business value:
- Create a step-by-step journal describing the impact to the business from multiple internal views:

o Operational - how the pandemic affected the ability to produce/deliver products or services and the actions (successful and unsuccessful) taken to minimize negative consequences.

o Customers/clients - what barriers did the virus create to generating the revenue needed to sustain and support the business?

- Isolate the financial impact to the business by tracking internal operational decisions/movements through financial statements of the distressed period.

o Create a separate spreadsheet using the company’s monthly/quarterly statements to document the areas of the business transformed by the pandemic and management’s corresponding business decisions.

o This spreadsheet will serve as support to the journal above, without disrupting the historical flow of data through financial reports.

EVERY person and business has been altered by the pandemic. Even companies in the few industries that are benefitting from social distancing regulations have been forced to re-examine how they do business. Providing detailed evidence of how your company adapted to meet the challenges - even if that meant a complete shutdown - will validate the financial results when compared to past and future years.

We all look forward to the economy recovering as fast as safely possible. When your business has recuperated from these challenges and recalibrated for the new normal, your action journal and isolated financial impact statements will provide confidence to prospective buyers and justify a fair price.

Visualize deciding you’re ready to sell your business and the prospective buyer asks for financials including the period of the COVID-19 pandemic. Your options are to provide financial reports reflecting the devastation caused by the lockdown that leave the explanation to a “conversation” with the buyer, or the same financials supported by your action journal and isolated statements detailing the impact.

Buyers enter purchase negotiations with “buyer beware” firmly planted in their psyche. Facts trump conversation. If preserving the value of your largest single personal asset is important to your retirement, be prepared to present the facts, even the ugly ones.

Dave Driscoll is president of Metro Business Advisors, a business brokerage, valuation, and exit planning firm helping owners of companies with revenue of up to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or (314) 303-5600. www.MetroBusinessAdvisors.com.