Among the impacts of the current pandemic on many aspects of life and nearly all aspects of business, the impact of COVID-19 on business property appraisal or valuation is substantial. Many businesses have been forced to close for an extended period of time while others have managed to reopen at greatly reduced capacity; this reduction in activity—and cash flow—has big implications for the value of these businesses.
In this article, we’ll examine both the appraisal and accounting impacts of COVID-19 on businesses—and why many businesses may need to be re-valued in the wake of the pandemic.
Impact Of COVID-19 On Business Property Appraisal
The biggest impact of COVID-19 on business appraisal is the creation of the need for many businesses to seek new, post-pandemic value assessments. (Tweet this!)
The pandemic has materially impacted many economically sensitive assets such as energy and real estate. Valuations of businesses and business assets using the income valuation approach will reflect greatly reduced cash flows for businesses in a wide variety of sectors, while the uncertain future will depress projections. On the other hand, valuations using the cost approach can be expected to reflect lower costs for materials, labor, and other construction costs as a result of the current weak economic environment. In either case, a business valuation now will result in a lower value than pre-pandemic. Intangible assets have also been impacted; for example, companies that had new intellectual property (IP) ready or nearly ready to launch may have had to redirect resources to navigate the economic fallout of the pandemic.
Businesses that have been materially impacted—particularly those that were purchased recently, within the past two to three years—are advised to do goodwill impairment testing. Recently purchased businesses in heavily impacted sectors such as travel or oil exploration are now worth materially less than they were at the time of purchase. If there was goodwill on the books at the time of the transaction, it now needs to be addressed. A valuation specialist can conduct a business property appraisal to assess the full impact of the pandemic on the value of your business, including goodwill impairment testing.
Download our free Business Valuation Checklist to learn about the information needed to calculate an accurate, comprehensive current valuation of your business.
Impact Of COVID-19 On Tax Assessments
The only glimmer of a silver lining to the loss of business value resulting from the pandemic is that businesses that have lost value are not likely to have accurate tax assessments.
If your business assets are now worth materially less than they were previously, they are now likely inaccurately in the current environment. To argue your case, you will need to present a quantifiable and defensible value analysis to your local assessor. A business property appraisal prepared by a valuation professional will provide the analysis necessary to secure a reduction in the assessment.
The economic fallout from COVID-19 has been substantial for businesses; therefore, it’s important to take advantage of all potential cost-saving opportunities in order to survive—and to rebuild value after the pandemic passes.
Find out how COVID-19 has impacted your company’s value—and what you can do about it.
A business property appraisal will help to establish your company’s post-pandemic value, align your books to account for goodwill impairment, and provide a quantifiable, defensible value analysis to establish accurate tax assessments.
Valentiam has extensive experience in business valuations of various levels of complexity—as well as working relationships with assessors in various jurisdictions and experience in providing expert witness testimony. We can help you develop and present a value analysis to establish the current value of your business and present your case to your local assessor.
Our valuation specialists are experienced in all valuation methods acceptable in accounting practice, and we bring collective decades of expertise in valuation and transfer pricing to every project. Schedule a call to see how we can help you with your business valuation and transfer pricing needs.
Topics: Business valuation
