The COVID-19 pandemic has caused sudden and unprecedented economic disruption to businesses and people around the world. Some businesses may have already been near the end of their life cycle pre-COVID-19 and the pandemic accelerated the difficulties and decline in business value.

The first consideration for businesses struggling in the COVID-19 environment should be to determine if the current roadblocks are only temporary or potentially permanent.

If the strains on the business appear likely to be permanent or long-lasting, the next course of action may include a planned strategic sale or a liquidation, rather than continuing operations that could ultimately lead to a fire sale or bankruptcy filing.

As business owners evaluate the near- and long-term hurdles ahead of them, several steps should be taken:

  • Evaluate the possible duration of current business operational changes due to COVID-19.
  • Is the current business model still appropriate and should changes be made to it?
  • Assess and identify the company’s strengths and weaknesses by business function.
  • Analyze current and projected cash flows.
  • Evaluate earnings and margins by product and service lines.

With this essential information owners can make more educated decisions about how to improve the near-term value of their businesses in anticipation of a post COVID-19 sale. From a longer-term perspective, the following steps can help ensure the greatest possible return for an owner:

  • Start planning and preparing for a sale or other succession event now, by implementing and executing a business enhancement process that involves trackable key performance indicators.
  • Develop a business succession plan with buy-in from key management members and other stakeholders.
  • Identify the most likely exit strategy, e.g., strategic buyer, private equity buyer, internal management or family buyout, or an ESOP sale.
  • Recognize that post-pandemic valuations should accommodate adjustments for identifiable COVID-19-related temporary decreases or increases in revenues, margins, etc.

The current environment has put never-before-seen strains on the small- to mid-size business community. As business owners grapple with the “new normal” and consider life-altering decisions related to the fate of their businesses, there are many critical factors to evaluate. If you’d like to discuss any concerns with a trusted business advisor, our team at NEIRG or BSA would be happy to consult with you and help assess your business’s near- and long-term valuation.