Economic challenges driving one in four UK business owners to expedite exit strategies

As reported by Business Matters, the process of business owners exiting their ventures has been expedited across the UK’s business landscape, with nearly a quarter of owners opting to sell or wind down their businesses within the past year

The primary driving force behind this decision is the political landscape. With a general election scheduled to take place in the next 15 months and the Labour Party leading in the polls, concerns about potential changes in the UK government and subsequent alterations to the tax system have emerged as the top reason why business owners in the UK are expediting their exit plans. This motive was cited by 25% of respondents in a recent survey.

Many business owners have also cited challenges related to accessing capital and long-term investments. One in four owners have been motivated to sell due to ongoing difficulties in obtaining long-term capital, while 18% have pointed to the increasing cost of capital as a significant reason to sell. Additionally, a similar number of owners have mentioned the withdrawal of a key investor as a factor influencing their decision to pursue an exit strategy.

Furthermore, complications arising from navigating post-Brexit trade arrangements have been mentioned by 18% of business owners as a factor leading them to sell. In addition, 23% of owners have opted to sell due to the detrimental impact of high inflation on their businesses, which has driven up labor, energy, and material costs.

Personal factors are also playing a role, with 25% of business owners aiming to unlock the equity tied up in their businesses to address their current personal financial challenges.

In the past 12 months, 23% of business owners have expedited their exit plans, while 36% have postponed their exit plans.

Tom Shave, a partner at Evelyn Partners, a leading wealth management and professional services group that conducted the research, commented: “After several challenging years for business owners, it is understandable that many are considering their future prospects. As the general election approaches, many business owners are concerned about potential tax changes, such as an increase in the capital gains tax rate.

“Businesses also continue to face obstacles in their operations and long-term funding. Therefore, it is reasonable that many owners view the current climate as an opportune time to capitalise on their success. However, others have delayed their exit plans, likely due to economic uncertainty and concerns about obtaining the best price for their business, as evidenced by a slowdown in merger and acquisition activity.”

Regarding the strategies employed by business owners for their exits, selling to private equity is the most favored route. Twenty percent of owners pursuing an exit strategy are looking to sell to private equity, while 11% aim to sell a minority stake, and nine per cent are seeking to sell a majority stake.

Employee ownership trusts are also a popular choice, serving as the preferred exit route for 18% of business owners.

Shave added: “Exit routes will vary for each business owner, and while there are discernible trends for certain strategies in the current environment, it is crucial that owners pursue an exit strategy that aligns best with their specific circumstances and their business.

“We are witnessing an increasing number of owners turning to employee ownership trusts as their preferred exit strategy. Establishing an employee ownership trust can be a quicker process than going to the market and also allows owners to retain greater control over the valuation of their business compared to external exits, where the business’s value is determined by what the market is willing to pay.

“However, owners should consider how their exit strategy aligns with their business and personal goals for the future, whether it involves generating income, succession planning, or maximising equity to pursue new ventures. Selling a business is a deeply personal matter for owners, so it is important that they seek comprehensive advice that takes into account both the commercial and personal implications of their sale plans.”