How Does COVID Affect Your Business Valuation?

April 26, 2021Insights

Many business owners are starting or restarting talks to sell their businesses in 2021, whether to avoid upcoming tax increases, leverage the current low interest rates, or simply embrace the prospect of the pandemic soon subsiding and the market bearing an attractive sale price as a result. Read more about these factors driving owner readiness to sell, and then let’s address the next question you might ask: “How much is my business worth?”

All businesses were affected by the pandemic in some way, shape, or form, so your current business valuation is inherently tied to COVID. Even if your business is doing better than ever, we need to view that success side by side with the circumstances and, most importantly, your trajectory. Here’s what you need to know right now:


PPP Loans Don’t Count as Income

If you received a loan through the Paycheck Protection Program (PPP), your valuation generally will not include those funds. It would be difficult to justify asking a buyer for a multiple on income that essentially served as a one-time grant, seeing as the loan was forgivable.

The challenge and perhaps even the argument for you as the seller is that the PPP loan required you to maintain your payroll and expenses to a higher level than you would have if you didn’t have the money. However, because the government covered those costs, they likely won’t be part of your valuation. We can pitch and plead to buyers as to why they should include a PPP loan in your valuation or allow us to remove some “additional” expenses, but most will not bite. 


Business Pivot vs. New Business Model

Did your business manage to come out ahead during the downturn? That is a huge win and a testament to your leadership. Just note the difference between a temporary and permanent shift in your business plan when seeking a valuation.

A clothing manufacturer that made $1 million producing face masks in 2020 might not see that $1 million reflected in a valuation in 2021 because the market for masks is now saturated and the demand may soon diminish. But it’s not necessarily so cut and dried. Take, for instance, an HVAC installer that benefitted from a rush to upgrade ventilation systems in hospitals. Those hospital installations might no longer be in the picture, but what about schools, offices, retail stores, restaurants, and other venues? The demand may continue for an extended time, raising projected revenue and, with it, the valuation.

Other changes in your business and operations, like working remotely, downsizing your office space, finding new efficiencies, or outsourcing, may also come into play. With any of them, we’re considering whether they will be ubiquitous in your business going forward.


Culture Wins, Culture Pays

In a business valuation, “goodwill” is the perceived value of a company above what might be considered a fair market price based on tangible assets such as a backlog of current contracts, veteran key employees, a repeating client base, diversified clients, proprietary products, intellectual property, and market share. These assets often tie back to company culture, which can be an important selling point despite being an intangible one. A tenured and/or growing team that weathered the pandemic together while remaining happy, healthy, and connected could be a notable bonus in buyers’ eyes. See our tips for keeping your culture positive and personal through Zoom fatigue.



A buyer is purchasing your future revenue and profit. These are sharp, sophisticated investors who can see through and past the effects of the pandemic when considering purchasing a business. A down year due to COVID won’t wipe out decades of stability and success prior, and an exceptional one won’t necessarily send your valuation skyrocketing. It’s all about the future—something all business owners can certainly embrace today.


By John Ovrom, President & CEO, Exit Consulting Group