Businesses choosing to voluntarily shut shop has reached a new high as the long-term impact of coronavirus restrictions and concerns over imminent tax hikes hits business owners.
A record 14,526 businesses in Britain voluntarily appointed liquidators last year, according to data obtained by accountant Price Bailey.
It represents a 7 per cent increase on the previous record set in 2020, when 13,590 companies voluntarily appointed liquidators. Just under 10,000 businesses opted to close in 2019.
A growing number of businesses are shutting up shop rather than attempting to survive
The Government’s vast support packages for small businesses, including the furlough scheme and bounce back loans, during the pandemic put British SMEs on life support, but as life returns to normality some challenges persist.
The Government recently announced National Insurance and dividend tax rates are due to increase by 1.25 percentage points from April 2022, which Price Bailey says may well prompt further voluntary liquidations.
‘[It] has prompted many owners of lifestyle businesses and limited company contractors to quit.
‘Successive governments have chipped away at the tax advantages of running a business to the point where business owners are deciding that the risks outweigh the potential rewards,’ says Price Bailey partner Matt Howard.
‘We may well see a flood of voluntary liquidations ahead of April’s tax rises.’
Inflation and cost of living crisis bites
Inflation and rising energy bills present another significant challenge to small businesses.
A survey of 577 senior staff working in UK SMEs by Barclaycard reveals that while the majority of businesses predict an increase in revenue this quarter, concerns over inflation mount.
The latest ONS figures show the headline CPI rate crept up to 5.5 per cent in January from 5.4 per cent the previous month.
Just under two thirds of small businesses are worried about the cost of living crisis and inflation, while 39.4 per cent say rising inflation will impact their ability to remain competitive.
Rising costs have also prompted 9.5 per cent to reconsider the need for a physical retail outlet.
SME leaders now view the rising cost of living as a bigger headwind than any pandemic uncertainty, while a tenth of those surveyed consider inflation as the number one challenge for this year.
Jo Fairley, co-founder of Green & Blacks and an SME Investor said: ‘The strong start to the year for British small and medium-sized businesses, who are looking forward to an average anticipated uplift of 13.5 per cent in earnings over Q1, is really great news.
‘But it comes at a time where two thirds of SMEs are also acutely aware of the challenges posed by the rising cost of living, inflation and energy bills – potentially a perfect storm.
‘From my own experience running multiple ventures, I know all too well that trying to weather economic turbulence while growing a business can be daunting on top of the day-to-day fire-fighting.
‘Nevertheless, the last couple of years have shown that the British consumer is keener than ever before to support smaller and local businesses, and this should prove really positive for SMEs, helping them not just to cope but go grow in the months ahead.’
I want to sell my business but don’t know how – is there an eBay type place to list it?
Business owners may well be rushing to liquidate and take cash out of their businesses but Price Bailey suggests a trade sale or management buy-out is a better option.
The report says: ‘We are seeing a surge of enquiries from business owners who are solvent but wish to cease trading and cash out.
‘Many of these businesses have been wholly or partially mothballed over the past two years and the accelerated digitisation of the economy has left businesses needing to invest heavily to adapt,’ says Price Bailey partner Matt Howard.
‘For businesses with significant overheads such as property the best option might be to terminate the lease and liquidate.’
For viable businesses, however, a management buyout may be a better option.
‘There is a large pool of potential buyers with cash to spend, and many of these businesses will have built up intangible value, such as goodwill, which will be lost if they simply cease to trade.
‘Business owners are missing an opportunity to boost their pension pots if they liquidate without thoroughly exploring a sale first.
‘There are plenty of available buyers that are able to access cheap debt to finance acquisitions.
‘High Street banks are showing a greater willingness to lend and there is a flourishing ecosystem of alternative lenders with an appetite to finance acquisitions.’
Where should businesses look to sell their business? For small businesses there are sale agents, such as Daltons Business, and business brokers for larger companies.
However, Howard warns these sales sites are not advisers and some can charge excessive fees.
He adds: ‘An accountant can ensure that a business is properly valued and so is attractive to buyers and the seller gets a fair market price.
‘An expert valuation also helps ensure sellers obtain some value for the goodwill and intangible assets of the business – its name, customer list, website etc. – in addition to the net assets more typically recorded in the company accounts.’