The business sale marketplace has never been more active than it has been in the last twelve months.
Many market analysts have suggested this is down to the recent improvements in the overall UK GDP, yet with the average business sale taking over twelve months from inception to completion, most of the sales completing now did not start within the current upturn, but in a period of economic uncertainty.
We investigate why.
So, why do low interest rates have such an effect on business sales? The two main reasons are: the cost of borrowing and the current returns on investment.
Although bank borrowing has been notoriously hard to get hold of for many small businesses, money is available to investors buying businesses and the associated cost of that borrowing has never been lower. It really is very cheap to service a loan, making acquiring and investing in a business extremely attractive.
The second reason is the range of current investment opportunities are pretty underwhelming for those with assets to invest. Property, whilst picking up here and there, is not showing much growth. Currency is risky. Precious metals are inflated and the stock market is still nervous. So, many investors are looking to invest in business, particularly as savings currently carry so little reward.
The Long-term Outlook
There is only one direction interest rates will be heading in, and that is upwards. The only questions are ‘when’ and ‘how far’. The answers to both lie in the economic recovery and within the walls of the Bank of England. Whilst it is unlikely that they will rise dramatically, given the recovery we are seeing so far, it is likely that rates will start edging up in 2014 and, if the 2015 outlook is positive, will rise further next year.
If you are a business owner in the UK and a shareholding of 5% or more in a business you are only taxed at 10% on any gains of ‘qualifying assets’ (up to a £10 million lifetime allowance). This is one of the biggest carrots from the government to encourage people to invest in, or setup, businesses in the UK.
If you are considering selling, then we strongly recommend that you look carefully at the qualifying criteria for Entrepreneurs’ Relief from the HMRC website and consider carefully whether you are eligible.
The Long-term Outlook
This policy is unlikely to change under a Conservative / Coalition government. However, should Labour win the next election, there is a high chance that this kind of policy will come under review and may be altered as early as 2016.
Given these two critical factors, particularly the interest rate issue, we recommend that, if you are considering selling your business, then you should start now because no one will exactly know what 2015 and beyond will bring.
There will be a change in government, with the current coalition almost certainly not retaining power. Will it be Conservative or Labour, or another hung parliament? And, if any of these outcomes, what will happen to Entrepreneurs’ Relief? No one can be sure, but it is likely to be reviewed by whoever wins in 2015.
On top of that, the economic outlook means that interest rates are almost certainly going up, and this will mean that the attractiveness of investing in business will dip. Yet, if interest rates do stall, it will almost certainly be because the market conditions have become uncertain again.
So, if you’ve come to the conclusion that it’s time to prepare to sell your business, we have a wealth of information on our site to help you with this; and if you need specific help, then call us on 0333 050 8225 and we will help point you in the right direction.
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