Valuing your business now may seem to some as being akin to turkeys voting to bring forward Christmas. Potentially you’ve just had a difficult March and a very tough April, so why on earth would you want to know the potentially diminished value of your business now? You didn’t get your business valued mid-crisis in 2008 and you’re not considering it now because, frankly, this really is starting to feel like 2008 all over again.
But, this isn’t 2008 and you’re not turkeys! If you’re planning to retire or exit your business in the next 5 years, which according to a recent Canadian Federation of Independent Business survey, 47% of business owners of you are, it is in fact essential to get your business valued now. Here’s why…
It’s About Limiting Uncertainty
Business is very difficult right now, I think we would all agree with that, but none of us can predict the condition of the market over the next few years. So let’s say you decide you want to exit your business in 2023. To accurately value your business, any reputable appraiser would request 5 years’ worth of data, 2018 through to 2021 plus your actuals from the current year. As you read this article, 2018 and 2019 represent your most recent full financial pictures and let’s face it, 2019 was only a few months ago. But in 2023, 2018 will look a long way in the past and the relevance of that data will be greatly diminished.
You might decide you want to ignore 2020 in your 2023 valuation, but that simply won’t be acceptable to any potential buyer, even if they do understand what you went through back in 2020.
So, to avoid the uncertainty caused by the coronavirus, you need to consider getting your business valued for the end of Q1, 2020. Then within the next 12 months, repeat the process and get your valuation updated. This will provide you (and any future purchaser) with a complete and accurate picture of your business performance and value.
2021 Could See a Significant Buyers’ Market
Nearly all projections of the North American automotive buy/sell market in 2021 show a sharp increase in the number of Dealerships for sale. This was projected prior to the crisis but the trauma caused by the current situation will only make the position worse. An abundance of dealerships for sale will create a buyers’ market and in that scenario, dealership values are likely to decrease. For certain brands and locations, that decrease could be significant. So, even if 2020 is your worst performing year in memory, from a purely valuation position, next year could prove worse.
About the author: After successfully completing his Bachelor of Business Administration from HEC Montreal; Maxime obtained the CPA, Auditor CA designation.
He served as a Senior Audit Consultant at KPMG Enterprises, an accounting firm of international stature. There, he managed audit files, review missions and due diligence in various industries from private Canadian companies to larger publicly traded entities.
Subsequently, Maxime worked for a publicly traded consolidator in the transportation Industry. This company which oversaw more than 100 entities was the largest player in Canada and growing its US operations. During his employment, he was involved in multiple acquisitions and business divestitures totaling over $1,5 billion in less than 3 years. Specializing in business valuations, valuation models and sales & acquisition, Maxime meets the highest standards in the industry. He is a true car enthusiast and is passionate about the automotive Industry.