How Remote Work is Affecting Business Valuation

COVID-19 pandemic has impacted more on the rise in the concept of remote work or Working From Home (WFH). Due to the high risk of contracting the disease, working from home has become necessary. The situation has brought comfort to employees working from home. However, there have been challenges in transacting businesses. Currently, there are numerous difficulties in transacting mergers and acquisitions and the valuation of various businesses.

Impacts of Remote Work

Working Models

The current situation has forced businesses to introduce new working models. The concept of working from home is the new norm. Working from home ensures that the workforce talent is retained while the business maintains the previous productivity from the old model. Depending on the scope of work, most companies have introduced various models of working remotely. Employees can work fully from home or have hybrid models where they alternate from working remotely and appearing in the place of work once in a while. Most hybrid models have two days working from home, three days in the office, and two off days. The model ensures that the office space is not overcrowded and ensures that the employees maintain social distances. These models aim to lower the number of employees per shift, reduce the running cost, and improve the company’s productivity. These factors in the new working models impact the determination of business valuation despite the pandemic.

Structural Shifts in Various Businesses

When the ravaging effects of the pandemic were felt around the globe, various governments-imposed measures such as lockdowns. These lockdowns affected the running of the businesses, consumer spending patterns, and behavior. These drastic changes have resulted in sudden changes in the economy and the business markets. Workforce moving to remote work has boosted online shopping and general e-commerce business, especially in the apparel industries. Businesses that have also benefited from the introduction of remote work include digital payment and logistics companies. However, there are businesses that the remote work has negatively impacted. These include hospitality, business travel, commercial aerospace, and transportation companies.

However, remote work has brought a paradigm shift in doing business. Most businesses align their operations with Artificial Intelligence (AI) and automation in their manufacturing plants and warehouses. Businesses less likely to cope with the changes include commercial real estate companies. Working from home trend has reduced the demand for non-residential rentals and construction due to the decrease in demand for traditional offices. However, construction in the suburbs is set to rise as people move to less populated and smaller cities. Remote work led to a decrease in the demand for individual motor vehicles, but this was compensated by the increase in demand for the cab and delivery vehicles.

Working Environment

Remote working culture has provided employees with flexibility in the working conditions, more freedom, and a perfect balance between family and work. However, the rising cost of living has negatively impacted society.
Employees have moved to the cheaper house to bridge the gap between the rising cost of living. In contrast, companies have relocated to find offices in less expensive locations to reduce running business costs. The move has positively impacted sustainability by reducing motor vehicle pollution and energy consumption in offices.

Business Valuation

Remote work has negatively affected the productivity of industries such as wholesale and manufacturing, which rely heavily on the workforce. Less productivity in these industries means less valuation of the business. The effect calls for business transformation, such as introducing new technology to monitor the situation.

Companies providing business technology services have seen an increase in their value due to the high demand for a new structure for remote work. Other businesses that have benefited from remote work include the providers of home office equipment. However, these factors have increased the businesses’ financial load, affecting their valuation.

Conclusion

Poor implementation of business structure from the normal working office to remote work can hinder a company’s growth and valuation. The new working models, especially due to the pandemic, can negatively affect a business valuation if not correctly planned. Wiley Financial can provide objectives by assessing your business functions. We can advise you and provide the best appraisal insights if you want business acquisition. With our wide experience in various business valuations, we will help you achieve your business goals despite the changes in the economy’s structure. Contact us today at Wiley Financial.