David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, forensic accounting, and marital dissolution services in Philadelphia and the Delaware Valley.

A number of clients and colleagues have asked me how business valuations have been affected by the COVID-19 pandemic.  After consulting with business valuation experts and reviewing relevant literature, I will discuss the impact over the next two blogs.  Up first, how the date of valuation is impacted.

As I have mentioned in previous blogs, the information relevant to valuing a business must be known or knowable as of the valuation date.  I will explore the impact based upon the following valuation dates:

Valuation date of December 31, 2019 or prior

Valuation experts generally agree that as of December 31, 2019, almost nothing was publicly known about the COVID-19 (I use the term “publicly known” because Federal intelligence community briefings which may have discussed the COVID-19 would not have been known to the general public.  Hence, a willing buyer or seller would not have taken the COVID-19 into consideration.).  In fact, China only notified the World Health Organization (WHO) on December 31, 2019, of several instances of a flu-like illness in Wuhan.

Accordingly, any valuations as of December 31, 2019 or prior would not consider the impact of the COVID-19 pandemic.

Valuation date between January 1, 2020 and January 31, 2020

Although the COVID-19 began to get some attention in January 2020, the following relevant public information was available:

• January 21, 2020 – 1^st case of COVID-19 reported in United States.
• January 23, 2020 – WHO meets and decides to not declare the COVID-19 a Public Health Emergency of International Concern.
• January 28, 2020 – United Airlines suspends all flights to China from the United States.
• January 29, 2020 – Several other airlines suspend all flights to China.
• January 29, 2020 – White House creates COVID-19 task force.
• January 31, 2020 – President Trump issues a limited travel ban for persons entering the U.S. from China. The limited travel ban applied to non-U.S. citizens, other than the immediate family of U.S. citizens and permanent residents, who were prohibited from entering the U.S. if they had traveled to China within the previous two weeks.
• January 31, 2020 – Total COVID-19 cases in the United States – 6. Number of deaths from COVID-19 in the United States – 0.

Based upon the above, it is most likely that the impact of the COVID-19 pandemic was not generally known or knowable to businesses in the United States.  However, if there is documentation which a business possesses (e-mails and other notifications from vendors and/or clients and/or industry sources) which describes projected impacts of the COVID-19 pandemic, this could lend credence to a company’s argument that the impact of the COVID-19 pandemic was known or knowable at this early date.

Valuation date between February 1, 2020 and February 29, 2020

In February 2020, the following relevant public information was available:

• February 4, 2020 – In his State of the Union address, President Trump pledges to safeguard Americans from the COVID-19.
• February 11, 2020 – The worldwide death toll from the COVID-19 surpasses 1,000 – mostly in China.
• February 19, 2020 – The worldwide death toll from the COVID-19 surpasses 2,000 – mostly in China.
• February 24, 2020 – The Trump administration sends a request to Congress to provide $2.5 billion in funding to fight the COVID-19.
• February 24, 2020 – President Trump announces that the COVID-19 is under control in the United States.
• February 25, 2020 – San Francisco declares a state of emergency over the COVID-19.
• February 25, 2020 – The Center for Disease Control (CDC) announces that the spread of COVID-19 to the United States is likely and that people should prepare.
• February 26, 2020 – President Trump states that there are only 15 people with the COVID-19 in the United States and that the COVID-19 is about to disappear.
• February 29, 2020 – Washington state declares a state of emergency.
• February 29, 2020 – 1^st death reported in the United States attributable to COVID-19. Worldwide death toll is under 2,900 of which less than 100 are outside of China.

Based upon the above, it is still likely that the impact of the COVID-19 pandemic was not generally known or knowable to businesses in the United States.  There was only one death reported (subsequent updates to this number were not known or knowable until a later date), and as late as February 26, 2020, President Trump was stating that the impact was insignificant.  However, if there is documentation which a business possesses (e-mails and other notifications from vendors and/or clients and/or industry sources) which describes projected impacts of the COVID-19 pandemic, this could lend credence to a company’s argument that the impact of the COVID-19 pandemic was known or knowable at this early date.

Valuation date between March 1, 2020 and March 31, 2020

The impact of the COVID-19 pandemic began to take off in the United States in March 2020.  During the first week of the March 2020, Florida, California, Maryland and New York declared states of emergency. By March 10, 23 states had declared a state of emergency.  By March 13, President Trump declared a national state of emergency, and Pennsylvania and 15 other states announced school closures.  Almost all major sporting and college sporting events were cancelled/postponed.  On March 21, 2020, New Jersey’s governor implemented a “Stay at Home” order.  This was followed by Philadelphia (March 23), Delaware (March 24) and Pennsylvania (April 1).

Based upon the above, it is likely that the impact of the COVID-19 pandemic could be argued as to having been generally known or knowable to businesses in the United States by the end of the first week in March or at latest by March 13 when the national state of emergency was declared.  If there is documentation which a business possesses (e-mails and other notifications from vendors and/or clients and/or industry sources) which describes projected impacts of the COVID-19 pandemic, this could lend credence to a company’s argument that the impact of the COVID-19 pandemic was known or knowable at one of these early dates.

Valuation date of April 1, 2020 or after

In my professional opinion, the impact of the COVID-19 pandemic was generally known or knowable to businesses in the United States by April 1, 2020 and thereafter.

Divorce Valuations

When valuing a business for a divorce, three valuation dates could be applicable:

• Date of marriage
• Date of separation
• Current date for decline in value claim

The above valuation date information certainly applies for date of marriage and date of separation.  However, if a spouse intends to claim that the current value of his/her business has declined in value due the COVID-19 pandemic, the business valuator would examine the business’s value as of some current date.  To the extent that the current date is April 1, 2020 or thereafter, the impact of the COVID-19 pandemic was generally known or knowable to businesses in the United States.

If you require the services of a Certified Valuation Analyst in Philadelphia or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Valuation Analyst and a Certified Fraud Examiner in Philadelphia.