Insight 40 - Magazine - Page 16
Economic uncertainty as an entire
generation gets set to quit
T
he UK is facing a ticking time
bomb as an entire generation of
SME owners look set to exit their
industries.
What should be an exciting period of
change, which could see us stand on the
brink of the largest generational wealth
transfer in history, may well prove to be a
massive body blow to our economy.
The baby boomer generation now
dominate the ownership of our legacy
businesses and while 28% of SMBs
in the UK are considering selling
(FirmGains,2021), only 2.2K companies are
acquired each year on average. As a result
an estimated 1.8M+ jobs could be lost if
such companies were to liquidate due
to being unable to sell to- or appoint – a
successor, while the treasury would lose
£25B in annual corporation tax revenue
and £17B in annual PAYE/NIC. Annual net
VAT income could be reduced by £49B, and
the annual welfare cost of unemployment
via Universal Credit could increase by up
to £68B.
In the UK, 22 million people – 59.6% of all
employees – are employed by 1.3million
SMBs, 127K of which are owned by those
of retirement age who have no succession
plan. Many business proprietors are
woefully unprepared for selling their
companies to a new generation of owners.
Information-asymmetry and misaligned
expectations lead to egregious levels
of deal-failure, and the cost, time and
complexity of Mergers & Acquisitions
(“M&A”) are often prohibitive – largely
because of the outdated and inefficient
offline manual processes still followed
today.
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The latest data shares that Boomers own
more than 75% of the nation’s property
wealth, they collectively own 2.3m
businesses, and one in 5 of them is a
millionaire. A recent analysis of business
by an organisation called BizCrunch has
revealed much about the broader world
of business, and the situation that might
lie ahead.
BizCrunch provide detailed data and
analysis for active companies in the M&A
world but have recently established that
of the 1.3million active employment
businesses there are some 28% where
the main shareholder and director has
yet to retire representing some 360,000
companies at risk of potential change
and this against an average of only 2,000
companies last year arranging a sale.
If the owners of this huge volume of
SME’s decide just to give up as the
current economic and employment
situation is too troubling for them, then
the taxes generated by these companies
and lost because of closure have been
calculated at some £160 Bn, which would
make a sizeable dent in the Treasury’s
figures and place the country in a severe
depression.
Comparing our economy to the USA
where there exists the Small Business
Administration (“SBA”) which was
established in 1953, but whose
government-backed loan programme
was significantly enhanced in 2010 under
the Small Business Jobs Act. An SBA M&A
Loan – often used as a key element of
financing ETA deals – is typically available
up to a 90% Loan-To-Value (LTV) for a
maximum 10-year term, fully amortised
bIZ4BIZ INSIGHT MAGAZINE | SEPTEMBER 2024
with no prepayment penalty. These
loans are made available via a network
of approved lenders, with 75% of the
principal sums underwritten by the US
Government, making them attractive for
both lender and borrower.
A threat to UK Prosperity that we can’t
Retire from Trillions of pounds of real
asset-value currently sit on the balancesheets of established small- and mediumsized businesses (SMBs) — companies that
are driving the economy, but these valuecreation engines are often overlooked for
investment or non-dilutive growth finance,
due to their steady subsistence.
The UK clearly needs an SBA M&A Loans
system and is this something that
Government must action now.
Adrian Hawkins OBE Chair of biz4Biz said:
“Speaking as someone who created his
own business from the boot of his car and
dining room table which I eventually sold
to a NASDAQ corporation, I have much
experience of employing people, creating
a great team and never making anyone
redundant in our main business.
“The pressure on me as a businessman
was ensuring that the company remained
profitable, covered all its costs and
keeping the support team on board
and focused. During my 40 years of this
valuable experience, we had moments of
feast and famine in employee availability
where the latter was always far more
frustrating than you can imagine.
ADRIAN HAWKINS OBE
Chairman - biz4Biz
Chairman - Hertfordshire Futures Board
Chairman - Stevenage Development Board
Chairman - Hertfordshire Skills & Employment Board