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Valuing a Business in the COVID-19 Era

01/19/2021 Bryan Setz

As we embark on a new year, one would be hard-pressed to find an area of the world that hasn’t been impacted by the Covid-19 pandemic. Business owners have had to become more adaptable than ever. Even with vaccines in production, it looks like conditions will not change for some time. Tack on a complete change in political power in the White House and Congress, and business owners are left to continue navigating the rapidly changing landscape. For many of these owners, the added economic pressures and change in government leadership have left them thinking about an exit strategy. If following an exit plan, business owners must understand the market value of their business.

Valuation reports provide support for determining the estimated value of a company. For operating businesses looking to sell or buy one another, business valuators typically focus on two approaches: a market-based approach or income-based approach. Under a market approach, a valuator looks at similar companies that have recently sold, comparable companies with stock selling on a public exchange, or recent transactions involving a specific company’s stock or membership interest. If using an income approach, the valuator typically focuses on valuing the company by analyzing the historical operations achieved by the specific company or its forecasted expected earnings going forward. Under either approach, the valuation expert should be paying attention to the economic and industry conditions impacting the business, including the Covid-19 pandemic. Any abnormalities impacting the financial results of the company should be assessed and adjusted accordingly. Valuation experts refer to this process as normalizing the financial statements.

If you find yourself in the process of getting a valuation of your business completed, the following list [1], originally compiled by Exit Strategies Group, Inc., provides a comprehensive list of normalization adjustments that should be considered by the valuator conducting the valuation. Each of these adjustments have potential to affect the final calculated value of both the income and market approaches.


  • Lost sales due to customer disruptions
  • Lost sales due to supply chain interruptions
  • Lost sales due to production shutdowns or slowdowns
  • Abnormal increases to customer orders
  • PPP loan income
  • Specific Grant Income

Cost of Goods Sold

  • Expedite fees and abnormal shipping costs
  • Temporary price increases
  • Hazard pay paid to retain essential workers
  • Increased spend with subcontractors to overcome loss of internal capacity
  • Extra overtime and stay-at-home pay
  • Inventory write-offs related to reduced demand

Selling General & Administrative Expenses

  • Cost of personal protective gear
  • Increased cost for employee screening and security
  • Costs to reconfigure the work environment
  • Extra IT hardware, software, installation, and training costs to set-up employees for remote work
  • Extra cleaning/sanitizing labor and supplies
  • Bad debt expense, and effect on future revenue
  • Cancellation fees and refunds for unused events, travel, sponsorships, etc.
  • Reduced travel and entertainment costs
  • Insurance rate increases, rebates, and settlements
  • Costs due to change in business model (web, ecommerce, hands free POS)
  • Costs to find and qualify new vendors
  • Rent concessions
  • Extra CPA services related to CARES Act transactions and financial reporting
  • Other pandemic-related professional fees: HR, legal, financial, etc.
  • Severance costs
  • Suspended 401(k) matching
  • Reduced management salaries
  • Unearned bonuses paid to commissioned salespeople to use PPP funds
  • Write down of intangible/goodwill value (impairment analysis)

Balance Sheet

  • Excess cash from PPP loan
  • Declining PP&E values
  • Extended days outstanding for AR and AP
  • Decline in intangible asset values
  • PPP loan debt/forgiveness
  • SBA Debt Relief
  • Possible capital infusions (debt and equity)

There are many other normalization considerations to be made when valuating a business. This article outlines the most common adjustments related specifically to Covid-19. VonLehman’s business valuation specialists can assist you in getting your business ready for sale. We will be able to provide additional creative ideas that relate specifically to your business. For questions or guidance related to business valuation, contact Bryan Setz, Director of Business Valuation Services, at bsetz@vlcpa.comor 800.887.0437.

[1] Exit Strategies, “Discover Exit Strategies’ New Checklist of COVID-Era Normalization Adjustments,” Exit Strategies Group, Inc. (Exit Strategies https://www.exitstrategiesgroup.com/wp-content/uploads/2020/05/exit-strategies-logo-1-300×48.png, November 5, 2020), https://www.exitstrategiesgroup.com/checklist-covid-era-normalization-adjustments.

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