How Will Brexit Affect the Sale of My Business?
Following on from the historical decision for the U.K. to leave the EU in 2019, there are many questions being asked by small-business owners. Including what this means for future trading conditions, and critically, what a post-Brexit U.K. will mean for those looking to exit their business and realize their wealth.
Given that there are now over 5.7 million businesses in the U.K., and that 99.3 percentof these are classed as a small business, the conversation around how business owners will sell a business is more prevalent than ever.
While economic and political uncertainties may be typical of our times, the mantra that a stable economy drives business sales remains constant. Confidence that an investment will continue to trade healthily post purchase will always be one of the biggest factors when buying a business, so we want stable market conditions to prevail.
A fast growing business buyer market
We only need to look at the noise created in the run up to the referendum, which in itself was predicted to have an immediate negative impact on the U.K. economy (even a recession) as the decision to leave the EU was declared. However, the reality is that the economy has improved. At Bizdaq, we have witnessed over 30 percent more business buyers registering on our platform versus 12 months ago, which again shows the confidence investors have in finding good businesses in the U.K., regardless of Brexit.
If, as forecast by many, the U.K. economy remains stable following Brexit, we may even see a growing demand from investors who are captivated by the “new” U.K. trading environment, which would likely drive up buyer appetite and value multiples. If we see a decline in GDP or rising inflation in the U.K. post-Brexit, this would indicate a worsening economic condition, which may in turn see a reduction in sale values and appetite.
The reality is that good businesses will always sell. A well run, profitable business will not struggle to find willing buyers regardless of market conditions. Depending on the post-Brexit environment, there may be a valuation challenge with potentially lower multiples being achieved for U.K. businesses in the short term whilst confidence in the economy stabilizes.
The importance of confidence
As confidence is key to the volume of transactions being completed, there is a need for the U.K. to ensure its departure from the EU is as seamless as possible. This means that the impact on business owners looking to exit in the U.K. will rely on Brussels being fair in its terms for departure.
Having a positive economic environment is also key to the buying and selling of businesses. It is likely that the U.K. will be forced to further enhance this position with reduced corporation tax as an example. This type of move should stimulate confidence in business buyers for the road ahead.
There are some sectors that will face greater challenges if seeking an exit in or around Brexit, such as those relying on EU employees or suppliers to trade. However, those businesses that will benefit from EU deregulation post-Brexit may show greater growth potential and therefore an increase in buyer appetite.
There is certainly an argument that the impact on smaller owner operated businesses looking to exit will face less distinct challenges when selling compared to corporate and mid-market deals.
For domestic business buyers, who tend to work regionally rather than nationally, there is unlikely to be a meaningful change. A good local business will remain a good local business, and in many ways, it may be more sheltered from the wider impact of Brexit. This may make it a more investable opportunity, which is good news for small and micro business sellers.
A healthy domestic buyer market is always positive; however, the popular Tier 1 Entrepreneurs Visa scheme will also be shaken up by Brexit. This scheme has historically made the U.K. a very investable market to foreign buyers, and it is likely the U.K. government will want to expand this scheme further to continue its appeal post-Brexit. Again, this impetus and focus can only be a good thing for those U.K. business owners seeking a short- or medium-term exit. An example of the relaxed agreements likely to be agreed is removing the requirement for EU business people to have a U.K. visa post-Brexit.
The funding effect
Many deals rely on finance to get over the line, so an undisrupted lending sector will be important in ensuring access to funding remains available to buyers. The greater availability in lending, the greater number of able buyers in the market. For smaller businesses, where many buyers prefer cash over lending, this should not create any new challenges, other than buyers applying more conservative valuations on some businesses.
In this global world, we are never far from disruption, and the rise of the “fintech” sector is filtering down into even the smallest of lending circles. Therefore, even with the possibility of more restrained “high street” lending, there will be a void filled by high quality lenders who are eager to help business buyers.
For those buyers looking to fund a business purchase, a weakened pound means lower interest rates and cheaper borrowing which is further good news for anyone considering exiting their business in the short term.
Depending on the outlook post-Brexit, we may see more deals being structured in a unique way, with buyers mitigating risk. This could include less cash upfront deals and more by way of deferred payment or earn out.
Strong and stable
The U.K. has possibly the most stable legal, tax and regulatory environment in the world and this won’t change post-Brexit. So, any buyer considering buying a business will continue to be buoyed by the stability of the U.K.
For many business owners looking to sell in the run up to, or post-Brexit, the realization of an exit will be affected far more by your own investment in your business prior to sale, as opposed to the impact of Brexit itself. These can include streamlining your business processes, reducing “owner” reliance and ensuring your financials are in good order.
In summary, entrepreneurship is booming and the aspiration by so many to become a business owner has never been so high. Therefore, if you are looking to exit anytime soon, there should be little concern.
Entrepreneur.com, August 7, 2018