How the recession has affected the valuations of small business

How the recession has affected the valuations of small business

Smaller businesses do not always have the high value capital assets that larger companies have. For this reason they do not have much collateral when a recession hits. This can have a substantial effect on the valuation of the business as well as its ability to survive the recession. Those who do make it through these trying times might be left with high debts that were incurred during the recession and will therefore suffer a loss in the value of the business.

Another way in which the recession has impacted the value of small businesses is the decrease of sales and therefore the drop in production of small businesses in the manufacturing industry. Due to lower income, these businesses have been forced to cut back on expenditure on marketing and advertising which means that they got less exposure to the market which in turn reflected on the sales and turnover of the company. Larger corporations have also had a huge impact on smaller businesses bottom lines. Smaller retailers might not have been able to offer the same prices as larger ones who get better prices from suppliers due to the high quantities of a particular product that they buy.

Larger businesses who used smaller ones to provide them with certain services, have had cut these costs and perform these services or tasks such as marketing, catering or cleaning themselves. By losing these high profile clients, many small businesses have lost value as these clients have provided them with a significant percentage of their business or monthly turnover. Many small businesses also took a knock during the recession when larger firms called in any loans or lines of credit that they extended to the small companies in the past. Small businesses that did not have the cash flow to repay these loans had to sell off their larger assets in order to avoid possible bankruptcy.

Companies that could not completely meet all of their commitments in terms of loan or credit repayments got a bad credit rating meaning that they could not borrow again which has also impacted the value of the company negatively. Other possible factors that have affected the value of small business are the cut backs of employees as well as the reduction in the benefits that they receive. Having fewer staff means that the remaining workers have to handle greater workloads which could have a negative impact on productivity. Reduced benefits means that finding new employees can be difficult if the package is not worthwhile.

All these as well as a few other factors such as reduced consumer access and cuts to the quality of services and goods, have all led to a decrease in the value of some small businesses after the recession. The businesses that have relied on larger companies for survival have been hit the hardest and many have been pushed to the brink of bankruptcy. The fact that property and house valuations have dropped has severely affected the valuation of smaller businesses so it is always worth getting a good building survey .

Article Courtesy of www.direct-valuations.com.