Was it Covid or Was it Not?

According to the New York Times, the current situation with Covid and the economy breaks down into two distinct categories.

  • Republican politicians have done their best to downplay Covid, its effects, the vaccine, etc. and emphasized business viability.
  • Democratic politicians have been ultra-cautious with everything related to Covid and yet have ignored the side effects including the disaster of remote education, mental strain, lost jobs, and business failures.

There is a similar separation of opinion when it comes to the selling and buying of businesses and the effects of Covid. Here are three examples:

  • A client is blaming Covid for not hitting their goals this year. Last year was a super year with one reason being the employees had nothing else to do but work. No travel, no entertainment, not much of anything. This year has shown a drop from that peak performance because people now had things to do and were more than ready to do them, to make up for lost time. Were the goals overly optimistic?
  • A friend told me his business is up 50% this year. He knows part of it is a Covid spike that will not continue but he doesn’t know exactly how much of his growth is related to Covid because 2020 was flat. (thanks to Covid).
  • In analyzing a company for a buyer making an offer, we see tremendous growth from 2020 to 2021, about 60%. We know some of this is normal growth and some of it is related to the pandemic. We just can’t figure out the mix.

This is a tricky situation. A buyer can’t discount all the growth as coming from Covid and a seller can’t claim Covid had no effect when they grow 50 to 60%. It takes some creativity so that neither side gets burned. A buyer will easily get burned if they are not skeptical about huge rates of growth in a business and if that happens the seller may get caught in the fire also. Best to pay attention to the quote below.

“The question is not what you look at but what you see.” Henry David Thoreau 

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