Economic uncertainty as an entire generation gets set to quit

The 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and the cost, time and complexity of Mergers & Acquisitions (“M&A”) are often prohibitive – largely because of the outdated and inefficient offline manual processes still followed today.

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 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 balance-sheets of established small- and medium-sized businesses (SMBs) — companies that are driving the economy, but these value-creation 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.