Business valuation is critical for any organizations so that its accurate value can be determined and used for negotiations with potential buyers. It is a multifaceted concept that involves studying and analyzing the market very carefully to assess the accurate value of the business. However, the COVID-19 pandemic has made business valuation very difficult as social distancing guidelines are implemented throughout the country. Accounting firms in Singapore are also operating with the help of modern technology and conducting virtual meetings.
However, due to the pandemic, the economy is continuously fluctuating, and many other variables have also been introduced to the business valuation process. In such special conditions, the following common questions are being considered by the business owners:
- Is COVID-19 the root cause of all new problems faced by the economy?
- Has the pandemic affected all of the industries?
- How can we control the impact of the pandemic on business valuation?
- What assumptions should be made about the market?
- How will the business recover?
- What is the quickest solution?
In terms of the pandemic impact on different industries, it would not be wrong to say that it has affected every sector in one way or another. Glove manufacturers, medical equipment suppliers and the generic pharmaceutical industry have undoubtedly seen a massive boost due to the COVID-19 crisis. Other sectors, however, have suffered a lot. The automobile industry, energy sector, technological equipment industries and transport, especially air transport, have suffered massive financial losses.
To understand the issues faced in business valuation during the pandemic, it is essential to understand that business valuation is an estimated range value of your business which can change for a variety of reasons, such as the dwindling economy due to the pandemic. Many assumptions have to be made for an accurate business valuation, but COVID-19 has added many uncertain factors in this process. Since this is an unprecedented event, there is no way of comparing the business’s value to another market due to extreme economic uncertainty. Some experts have even labelled business valuation ‘impossible’ in these ambiguous times.
Some of the methods that businesses should adopt for business valuation during COVID-19 are:
1. Examine the Cash Flow
Assessing cash flow has always been an essential part of business valuation. Still, it is now more critical than ever that accounting firms thoroughly evaluate the cash flow of a business. The evaluation of cash flow will help the accounting team, budgeting team and business owners to get to know about their expected revenue growth, operating margin and business efficiency in these times of crisis.
Short-term strategies and quick implementation are needed by organizations in order to thrive in difficult market situations. Accounting firms in Singapore are helping many organizations to get through the COVID-19 and conduct an expert business valuation to obtain a clear picture of the business’s financial conditions.
A business valuation must focus on its short-term impact because COVID-19 has affected every industry differently. Hence, the method of assessment also varies depending on the business sector, overall condition and guidelines.
2. Long-Term Effects
Considering the long-term effects of COVID-19 on a business is also vital to assess accurate balance sheets and revenue growth. Long-term strategies include finding out the expected recovery path of your business and making any required changes to speed up the recovery period. Even though some industries are suffering from financial losses during this pandemic, they are expected to get a considerable boost after the crisis is over. Therefore, organizations need to analyze future trends in the market and get ready to fulfil anticipated significant consumer demand after the pandemic.
3. Discount Rates
The market is too uncertain concerning finalizing any interest and discount rates for any businesses, but data indicates that the discount rate should not become lower than the pre-COVID-19 price. Every organization and its partner accounting firm should conduct their own research in terms of future projections to come up with an efficient business valuation model that eliminates uncertainty and enhances accuracy. With the help of enhanced modelling, businesses can avoid the many unpredictable factors of the market and conduct a successful business valuation.
In a Nutshell
These are surely unprecedented times, and almost every business has been hit by the COVID-19 pandemic. However, if organizations conduct thorough and smart research to collect data, with the help of the professional accounting firms in Singapore, they can use the data to devise strategies for the betterment of the business and determine the accurate value of the company. The rigorous assessment of cash flow, industry-specific research and future projections are the keys to navigating business valuation during this pandemic. For more information, feel free to get in touch with us.