Here’s how to calculate how much your business is worth post-COVID.
So you’ve decided to sell your business, but you want to get the right price for it. In a pre-pandemic world, valuing and selling your business was pretty straightforward.
In the aftermath of the COVID-19 pandemic, however, valuing your business is a little bit trickier. The coronavirus pandemic threw the economy into turmoil and changed how and where consumers spent their money.
During the pandemic, a quarter of businesses saw their profits fall by 50%. Suddenly, companies selling medical supplies were posting huge profits, while traditionally successful hospitality and retail businesses suffered huge decreases in footfall due to pandemic restrictions.
If you’re looking to sell your business after this economic upheaval, you may understandably be worried about getting the best price. As we come through the other side of the pandemic, you want to make sure your company sells for its true value, considering the unprecedented nature of the pandemic and the effect it had on the economy.
In this article, you can understand the best ways to calculate the value of your business post-lockdown.
Prepare your business
Before getting a professional valuation of your business, make sure your business is robust and competitive in the post-COVID market.
Companies with a digital presence or the ability to sell their products and services online performed best during the pandemic since they were able to continue with sales without a physical presence. Before putting your business on the market, create a strong digital presence.
If it’s a possibility for your business, make working from home available to current or future employees. Many firms no longer want to pay unnecessarily for premises, and remote work seems to be a permanent shift in working patterns, according to business experts.
The more future-proof your business is, the higher price you’ll get for it.
If your business had continued as usual during 2020, what would the predicted sales have been? And how easy would it be to take your business back to those pre-pandemic levels?
These are the questions you need to ask if you want to value your business based on revenue expectations. Although it’s more difficult to calculate your expected revenue in the current market, you’ll need to analyse your business’s performance prior to COVID and understand the likelihood of revenue levels returning to previous amounts.
You could use the income approach, which involves calculating the current net value of the business’s income and projecting the future cash flows to determine the business’s present value. This approach may work better if you use the pre-pandemic value and prove to potential buyers how your business can bounce back to that value.
If your business has massively suffered because of the pandemic and impacted your potential future earnings, it may be better to use an asset approach to value your business. The asset approach involves adding up all your company’s assets, including property, furniture, equipment, and intellectual property, and then deducting liability.
The asset approach is particularly suitable if your income has been poor over COVID and doesn’t look set to rapidly improve.
The market approach involves offering an estimated price based on the market demand and the price of similar businesses when the sale price is compared to revenue or earnings.
If your sector has been particularly successful during the COVID pandemic, you might benefit from a market-based approach. If businesses like yours have struggled, using the market approach might not be ideal for your case.
The bottom line
In the current economy, it’s especially important to value your business correctly. You need to ensure that a buyer appreciates your business’s potential despite the effects of the pandemic, while also being realistic about your company’s status in a post-lockdown economy.
To get an accurate and fair valuation, it’s best to combine various approaches to get the final number. It’s also important to future-proof your company, so it’s prepared for any upcoming challenges, making it more likely to negotiate selling at a high price.