With a new presidential administration in place, we’re already seeing significant shifts in policy. Whether related to tax law, economic trends or industry regulations, these changes will likely impact business valuations — including those of privately-held companies.
Attorneys involved in divorce cases, shareholder disputes, estate and trust matters, and mergers and acquisitions will benefit from understanding how evolving policies could influence business valuations. Staying informed is essential for building sound legal strategies for matters where a business is involved.
Tax Policy Changes
Tax reforms, whether they involve corporate tax rates, capital gains taxes or deductions, can substantially affect a business’s cash flow and profitability — key components of valuation models.
The changes can impact a business’s operations, which in turn could impact its valuation.
Changes in tax structures can also impact valuation approaches, such as discounted cash flow or capitalized cash flow analyses.
A valuation expert can model scenarios based on potential tax policy changes, such as President Trump’s intention to lower the corporate tax rate from 21% to 15%. If corporate tax rates are lowered, businesses may have higher after-tax earnings, potentially increasing valuations. Conversely, tax hikes could compress profits and lower valuations. Scenario modeling can help attorneys prepare for legal disputes or business transactions.
Regulatory and Deregulatory Shifts
Regulations affecting industries, such as environmental laws, labor policies or financial compliance requirements, can create additional costs or open new opportunities for businesses.
President Trump’s executive order, the 10-to-1 Deregulation Initiative, requires that 10 regulations be eliminated for each new regulation passed. This directive will undoubtedly result in significant regulatory changes. While some businesses will experience increased compliance costs as a result of these regulatory changes, some will enjoy fewer costs.
Attorneys can help evaluate whether regulatory changes create risks or opportunities for businesses involved in legal disputes or transactions. For example, if new environmental laws impose stricter emissions standards, a manufacturing company may face higher operational costs, reducing its valuation. Conversely, deregulation in certain industries can spur growth and increase a business’s value.
Trade and Tariff Policies
Trade and tariff policies are a hot topic with the new administration in place.
International trade agreements, tariffs and import/export restrictions can disrupt supply chains, alter cost structures and affect market access — all of which influence business valuation.
Businesses dependent on imported goods or overseas customers may experience revenue or cost fluctuations due to shifting trade policies. Industries like manufacturing, agriculture and technology are particularly vulnerable to changes in trade policy. Trade-related risks could affect revenue streams, cost structures and long-term business viability in valuation assessments.
Interest Rate Fluctuations
Monetary policy, particularly interest rate changes, affects borrowing costs, investment returns and valuation models. Businesses reliant on debt financing or with high capital expenditures are particularly sensitive to interest rate swings.
Rising interest rates increase the cost of debt, generally making leveraged businesses less attractive to investors. Higher interest rates push up discount rates in valuation models, which can lower present-day valuations of future cash flows. Attorneys can help clients review loan agreements to understand exposure to floating interest rates or refinancing risks.
Need Help?
Governmental policies remain a driving force behind shifts in business valuations. By collaborating with valuation professionals and staying informed about the changing policy landscape, attorneys can provide up-to-date guidance to their clients.
Our credentialed valuation experts can help. Contact us here or call 800.899.4623.
