How Has the Coronavirus Affected the Value of my California Business?
Owning a California business has always been both desirable and different. Areas of great year-round weather and a laid back lifestyle have appealed to California entrepreneurs for decades. So has the potential for income, as were the state its own country, it would be the sixth-largest economy in the world.
It was also one of the first states to institute a mandatory lockdown in mid-March of 2020, and it is also has been one of the slowest and strictest states when it comes to reopening.
But what has the recent global pandemic done to businesses in California? Has the Coronavirus affected the value of your California business? The answer is likely yes, as business valuations all over the country have been impacted. But how have business valuations been impacted, and what does that mean if you were preparing to sell your business.
The California Difference
First, it is important to note that California, while a desirable place to do business because of the large economy, offers unique challenges of its own to business owners.
- California has more business regulation than other states when it comes to the environment, consumer protection, privacy issues, and more. Compliance adds to the cost of doing business.
- Taxes in California are higher than in many states, and often include city, county, and other regional taxes in addition to state taxes.
- The standard of living in California is generally higher than in other states, including housing, groceries, and other items. Much of this increase is related to taxation.
But there are potential tax breaks for companies and individuals, and with the right vision, running a business in California can be extremely profitable. This is especially true of manufacturing businesses that are located near Silicon Valley and the tech area in Northern California.
The Shape of Recovery
As businesses reopen, many at first assumed we would see a rapid, “V” shaped recovery. However, since this is partly dependent on consumer confidence, the current thinking is that the recovery will actually take much longer.
This may or may not be true of your business, depending upon whether you are in an “essential industry” and how rapidly people need your goods or services again. For example, it is suggested that many medical practices will experience a rapid recovery due to “catch-up” appointments for checkups and routine healthcare once the danger of the pandemic has passed.
The events and conference industry may take longer to recover, as it may be some time before consumers are willing to gather in large groups in smaller spaces. No matter what the industry, recovery will depend on many factors, ones you must be aware of.
How does this impact your business valuation? The answer is quite simply it depends. In the current recession-like economy, some businesses will see little impact, as the COVID-19 pandemic will be seen as an anomaly. Others will see long term impacts, and business values may be impacted for several years to come.
The good news is that it’s possible to recession-proof your California business, or at least reduce both short and long term impacts.
Recession Proofing Your California Business
Recession proofing your business means that you need to take several steps, the first of which is establishing a capital base and managing cashflow effectively. This is the foundation of any good business and making sure you have an emergency fund and a plan for “Black Swan” events is vital for your success. In addition, you should ensure that:
- You have insurance coverage for various “Black Swan” events, including business disruption.
- That your finances are in good order, and your books are in good shape. Always run your business like you are selling it tomorrow.
- Diversify: Be sure your business has several streams of revenue and stabilize them the best you can.
- Negotiate for Flexible Obligations: Negotiate vendor and client contracts, suspend auto-ship items and subscriptions, and temporarily suspend “perks” for yourself and employees.
- Get government help where available, like PPP loans and other programs.
The most important thing you can do is have a plan regarding what to do next, and what to do in future emergency situations.
The New Economic Reality
The pandemic has reset many industries, and a new economic reality is being defined. You need to determine where your business fits in that new reality, and if it doesn’t, what you can do to change it and make it fit.
For example, many California medical practices have turned to telemedicine and other technology to sustain them during this time and are finding that these are good permanent additions to their practice even as the economy recovers. Medicine, travel, events, and other industries have changed permanently, and adapting to the new reality is essential for survival.
This is the start of a new economic cycle, one of recovery and change. It may take time to establish a “new normal” and get your company profitable again. Patience may be a key to establishing the greatest value for your California business.
The “Why” Behind California Business Ownership
The most important thing for business owners to remember is why you started your business in the first place. What did you love about it? What inspired you to keep going in the past when things got difficult?
The likelihood is that you didn’t start a business you don’t like. You probably love what you do, or at least you did from the beginning. The question you have to ask yourself is if the business still brings you enough joy to keep going.
If it doesn’t, it may be time to think about selling your business. Remember, it takes time to sell a business and if you want to exit in the next two years, now is the time to begin the process. But it is never too early to start exit planning.
The first step, no matter what you plan to do, is to get a business valuation and get them annually. That way you know what your business is worth, but also whether it is gaining or losing value.
At Rogerson Business Services, we’ll help you value your California business, and we can also help you decide if now is the right time to sell, or if you should try to increase the value of your business before you list it. Contact us today! We want to be your business broker, and help you navigate through these troubled times.
