The business valuations of small companies can be volatile and are always prey to the latest set of published financial information. This must be even more the case in the current climate where COVID-19 must qualify as a “Bader” event.
It would seem to us where there are potential matrimonial proceedings and a business involved:
- The business owner would want to have a business valuation at the current time.
- Equally the other party is unlikely to want to proceed on weak business results.
It may not, however, be practical or congenial for some couples on the breakdown of their relationship to hold fire for a year or more to see if there is a return to pre COVID-19 trading and profitability or whether any downturn is more long lasting.
The reality could be that some business in the wrong sector may simply not survive and that any value has now been irretrievably destroyed.
Our view is that instructions to us may include the requirement to assess what the valuation might have been pre COVID-19 and then:
- Assess the impact of the pandemic and the lockdown on the business.
- Assess how long before the business might resume its previous level, if at all.
- Assess whether this impact (i.e. loss) is irremediable.
Much will depend on the quality of the financial information available by way of management information and projections. Many small businesses have a just in time approach to their year-end financial results, with no intermediate management information or projections.
Some businesses, ironically, may have had to prepare budgets and projections in order to access funding from banks or other institutions, although the ubiquitous bounce back loan is available without the need to furnish detailed information.
The instructions are also likely to encompass a valuation on a net asset basis or on a forced sale basis, if the business is in jeopardy and may not be a going concern. The net asset basis will need to take into consideration cash flow constraints, a reduced stock valuation and possible problems with cash collection.
Our Valuation team at Lambert Chapman LLP has the expertise to bring to bear in producing business valuations in this challenging environment. Please contact us if we can be of help.
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.