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Growth Planning in a Risk-Averse Environment In the aftermath of a tough few years , entrepreneurs who have been through it all have come out with a new perspective . Culturally , we ’ re witnessing a shift towards risk aversion among UK businesses , particularly those that have weathered recessions and the recent lockdown .
With borrowing and capital still scarce in light of ongoing high interest rates , the idea of investing to grow can seem risky . When talking to customers , we find many businesses are choosing to prioritise financial security over expansion . This can mean :
• Managing capital withdrawals strategically to maintain flexibility for operations
• Postponing or simplifying future investment
• Reducing hiring or focusing on re-training existing staff
• Managing fixed costs to improve capital buffers
Acquisitions as Exit Planning Given the diversity in the UK economic landscape , it ’ s inevitable that these factors will impact different businesses in a range of ways . For example , the private equity market is growing , with restructuring and acquisition activities on the rise .
This is a common phenomenon during economic downturns where smaller businesses in distress can present an
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attractive acquisition opportunity for larger enterprises .
For owners , this can either be a threat or an opportunity . Those who are tired of swimming against the economic tide may find the idea of a third-party buyout attractive , while others may prefer to maintain their independence . Indeed , while external acquisitions and mergers into larger groups can provide efficiencies of scale , they also risk changing the relationships that are the core asset of many small businesses .
Competitors who move into new ownership structures may have capital on their side , but this also provides the chance for smaller businesses to reiterate their core values and service levels to clients who value that approach .
Tax Planning Amidst Uncertainty With economic uncertainty still a major concern , tax efficiency and retaining cash is essential for managing outflows . With the number of credit schemes and deductions having tightened in the last few years , owners are left looking at good old-fashioned tax planning :
• Capital allowances , for instance , offer opportunities to invest in qualifying assets and reduce tax liabilities .
• Pension contributions can provide tax relief for excess capital in the business and long-term financial security for owners
• The difference between tax on salary and tax on dividends has narrowed over
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the last few years . For business owners , dividends might offer only a marginal tax advantage over salary at the lower end of earnings .
For drawing money out of the business , the lack of easy options available means that timing becomes the key advantage . For example , if you ’ re looking at a significant future expense , the time to plan for needing , say , £ 100,000 is at least two years in advance . This allows for more flexibility in timing bonuses and salaries to align with tax bands and reduce exposure .
Succession Planning For The Long Term Given the challenges facing owners , it ’ s understandable that some may be considering how to dispose of their business . But for businesses considering an exit , the rules on passing on your company are still tightening . For example , the current 10 % tax rate on business disposals , already reduced in allowance from £ 10 million to £ 1 million , might not be permanent .
As one of the main benefits for owners moving on , this can make the difference between walking away with the majority of your business value or losing thousands to tax . The earlier you start to think about exit planning , the more likely your chances of leaving on terms that suit your needs .
While the tax allowances remain , it is key to remember that crystallising this benefit requires a sale , which can be challenging in a market with expensive credit and limited buyers . If you start thinking about looking
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for acquisitions at the last minute , you may find a longer wait ahead of you than you anticipated .
This is one of the reasons that Employee Ownership Trusts ( EOTs ) have increased in popularity as a viable alternative to thirdparty acquisitions , but these bring their own complications .
Staying on Track in 2024 While headwinds remain , it ’ s important to remember that conditions are almost certain to improve with time . The difference between businesses that struggle and those that thrive is the ability to make the most of the opportunities available – your customers , your team and your unique position in the market .
This starts with the ability to understand your financials , mitigate potential risks and maintain enough capital flexibility to move when green shoots present themselves . Haines Watts advisors work with thousands of businesses , from one-man bands to international leaders in their fields , to help them get more out of their numbers . We can share best practices , advise on processes and ensure you have the data you need to stay in control .
To get more clarity on what the year ahead might hold for you , why not get in touch with one of our team ?
Swindon @ hwca . com | 01793 533838
Trowbridge @ hwca . com | 01225 751006
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