COVID19 Stimulus Payments & Valuations

9 Dec 2020 3:55 PMTroy Potter

 

 

 

Most businesses now show some kind of Stimulus payment in their revenue line related to COVID19. It's easy to discount them from profits as they are not a result of income generated by the business but we shouldn't forget why they appear in the accounts in the first place.

Jobkeeper payments generally go straight to the bottom line and will likley not be recurring income. However, before discounting it from the Net Profit, key considerations should include :

 

• whether or not the business indeed suffered a decline in revenue in order to be eligible for jobkeeper
• was the decline material or timing related,
• or was the decline in revenue engineered by the business owner
• is the business still receiving reduced Jobkeeper payments

 

You should also keep in mind that any decline in revenue is also likely non recurring in regards to pandemic interruptions but would have a significant effect on the profitability for the 2020FY. Considerations regarding revenue should include :

 

• whether the business was forced to close and for how long
• has monthly revenue returned to normal levels
• is the industry likely to suffer long term damage from the COVID interruptions

 

Cash Flow Boost stimulus was predominantly linked to Payroll but has been a windfall for many businesses. It would make sense to make allowances in the net profit to refect theses payments but business buyers should als pay close attention to how these payments were used.

 

• were they reinvested in the business adding tangible value going forward
• were funds used to retain key staff and set the business up for a strong recovery

 

Every business has unique issued affected by COVID interruptions and consideration of these should be every bit as important as the effect of direct stimulus payments on the Financial statements.