Today’s environment is ever-changing, with the advent and spread of COVID-19 affecting markets across the globe. Almost every company – small, midsize, and enterprise – is being impacted in some manner, and each day brings a new paradigm and shifting business conditions. Now more than ever, setting up a business valuation is an important step you can take for the health of your company, to prepare for the near/mid/long term, as well as to mitigate or eliminate potential negative events or trends under your control.
Return to Fundamentals & Re-Calibrate Expectations
Establishing a valuation sets a baseline for your business, allowing you to navigate your finances and operational requirements with a clearer understanding of where you stand. This comprehensive process is also a fact finding mission. Its purpose is not only to provide a monetary value of your company, but to also detail the qualitative strengths and weaknesses of the business. Imagine the power of charting the course of your business, armed with this kind of information. By understanding your company’s true worth, valuation also becomes a roadmap to future value creation. You will gain clarity on any decision making or resource allocation.
What should you do if you are thinking about selling your company over the next 12 – 18 months?
Consider the new buyer/seller dynamics:
Sharpen your pens, and really consider what value looks like to you and your business.
When in a robust market, value expectations are largely driven by buyer/seller dynamics. Now, however, proving that you can get back to steady revenue generation and steady cash flow will be paramount. In order to do this, you will need to understand your base case and worse case cash flow picture.
This activity may call for recalibrating value expectations and retirement goals. Talk with your financial advisor to determine if you will still have enough to retire if you decide to sell your company – or if your retirement needs/goals need to be adjusted in light of the current environment. For example, you may need to “lock in gains” to avoid possible further downside risk.
Key takeaways: Now more than ever, a thorough valuation of your business by an expert team is a critical step in your company’s health. In a turbulent environment, a valuation can support overall planning and preparation, promote smoother operations, and identify areas to focus on to be best prepared when the market calms and it’s time for a transition.