COVID-19: How Your Company Was Affected Will Impact Your Value

Not All Businesses Had The Same Experience or Impact; Where Does Your Business Fit

by Dave Driscoll

In May 2020, the government began to allow parts of our society and economy to re-open. In June, major business restrictions were lifting, including capacity restrictions, social distancing rules, and requirements for masks or face coverings.

By the time businesses were allowed to re-open, tremendous damage had been done across the full spectrum of business and industry. Major public corporations were in distress, searching for capital, forbearance, or any lifelines they could find. Many filed for bankruptcy as a safe harbor to restructure. The pandemic has caused a tremendous economic calamity.

Likewise, the impact to small businesses has been catastrophic and uneven. Many small businesses were devastated by the mandated shutdown, while others experienced increased business and profitability.

Lenders such as the Small Business Administration (SBA) will evaluate businesses using a combination of business performance and future risk, with an eye toward the ability of the business to weather short-term crises.

Post-COVID-19, businesses will be categorized in one of three groups:
1. Essential businesses
2. Businesses impaired or shut down with the ability to survive
3. Significantly-distressed businesses that were shut down

Essential businesses - We have all heard the term “essential business,” or those businesses deemed by the government to be “essential” to the operation of society. Businesses in this category experienced minimal impact and continued to operate at or near full capacity. As a result, they were minimally impacted. In fact, many businesses that performed better than usual during the shutdown period will see their financial performance adjusted to account for the “outlier” performance during the period.

Businesses impaired or shut down, with the ability to survive - The key factor for businesses in this category is working capital. These businesses were shut down, but had access to working capital, either from their own cash and lines of credit, or from government assistance programs created by the various government relief programs. If a company falls into this category and has the ability to ramp up and survive until reopening, minimal impact will accrue to business value. Business valuations will be reasonable regarding pandemic impact, given that all of society was affected. Projections will consider financial performance 12-to-18 months post-pandemic, reflecting the velocity of the business’s recovery.

Businesses significantly distressed and shut down - Once again, access to working capital is key. Businesses with marginal performance going into the pandemic will struggle to survive. Government assistance programs will be a significant lifeline for these companies. Retail stores, restaurants, and businesses that are dependent on hospitality and travel will be affected due to regulations regarding start-up and capacity.

Your small business’s current value, continued operations, and financial support will be analyzed based on where your business is within these three categories.

Personally, I feel for those businesses that have been affected by this horribly shocking event that occurred through no fault of their own. Observing the personal financial carnage to families, retirements, and employees is emotional for everyone. I know how frustrating and disheartening it is to be impacted by factors outside your control, and it is difficult not to feel “if only I had done this or that,” things would have been different. Maybe so, but the events created by the COVID-19 pandemic are bigger than you, outside your control, and no personal reflection on those devastated by the crisis.

To all my fellow business owners…, take care.

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.