The Effect of COVID-19 on Your Business Valuation

You may be wondering how COVID-19 affects the value of businesses. Depending on when the business is being valued, the COVID-19 virus could have a significant impact on the value of a company. So when would valuations have to account for effects of COVID-19? Valuation standards indicate a valuation analyst should consider facts and circumstances existing at the valuation date and events occurring up to the valuation date that could have been reasonably “known or knowable”.

When was COVID-19 “known or knowable”? Analysts have looked at the timeline of the coronavirus and the timing it impacted the markets.  Many believe COVID-19 was “known or knowable” in the U.S. in the second half of February 2020. This is the time when there was a significant drop in the three major U.S. stock market indices due to fears that the virus will weaken the economy.

Valuations using a valuation date before mid to late February do not need to consider the effects of the COVID-19 virus because it was not “known or knowable”. The valuation analysts should consider the need to include a subsequent event disclosure if the valuation report will be dated after the mid to late February 2020. A subsequent event is not required and it is up to the professional judgement of the valuation analyst.

If you have questions regarding a business valuation, succession planning or other business needs, please know we are available to speak with you by phone at 215-675-8364.

DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.