Business Partnership Budget reaction

This post appeared on The Business Partnership website and I thought I would re-post it here; some good points and food for thought.

After the headlines and sound bites comes the task few of us would envy – picking through the fine details of Chancellor George Osborne’s eighth Budget.  The proposed sugar tax predictably grabbed the tabloids’ attention but many of the more heavyweight commentators have chosen to focus on the implications for Britain’s small businesses including newsagents in Nuneaton, corner shops in Barnstaple and hairdressers in Leeds.

Most agree that small businesses are the big winners following the announcement that 630,000 small businesses will pay no business rates at all from 2017.

 

The annual threshold for 100 per cent relief on business rates for small firms will rise from £6,000 to £12,000 and the higher rate from £18,000 to £51,000. Mr Osborne claims the reduction will save small businesses some £7 billion per year.

The Chancellor didn’t hang around to introduce a change to commercial stamp duty, which came into force at midnight on March 17. The rate is now nought per cent on purchases up to £150,000, two per cent on the next £100,000 and a five per cent top rate above £250,000. There is also a new two per cent rate for high value leases with a net present value above £5 million.

Also of significant interest to SMEs is the news that the self-employed will no longer have to pay class two national insurance contributions, which will be abolished from April 2018. Businesses of all sizes will also be relieved that there is no increase in fuel duty.

At Business Partnership, we believe the increase in the small business rate relief threshold will have a significant impact on the profitability of small retail businesses, which in turn will help business owners to realise a higher value when they come to sell their business.

Long term confidence regarding small business rate relief will breed confidence in the High Street which will improve the marketability of these types of businesses. In recent years they have become less attractive to new buyers, especially younger generation buyers.

A reduction in corporation tax to 17 per cent by 2020 will allow small businesses to retain more profit which provides cash flow. This in turn can be reinvested to achieve growth and enhance their value on sale.

The Chancellor has looked after small businesses generally which will make the sector more attractive at the point of sale. This will hopefully encourage young investors to start or purchase a business as an alternative to employment.

If you are considering buying or selling a business, contact Business Partnership’s team of experts, who are based across the UK.

 

8 Key Factors That Make A Business Worth More Than The Rest

The value of your company is partly determined by your industry. E.g cloud-based software companies are generally worth a lot more than printing companies .

But, when we look at businesses in the same sector, there can be major differences in valuation. Below are 8 factors that can really make a difference.

1. Recurring Revenue

The more income a business has from automatically recurring contracts or subscriptions, the more valuable the business will be to a buyer. Even if subscriptions are unusual in the sector, if a business can find a form of recurring revenue it will make it much more valuable than its competitors.

2. Something Special

Buyers want what they cannot easily replicate on their own, so developing a unique product or service that is difficult to compete against makes a business more valuable than one that sells the same commodity as everyone else in their industry.
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Five ways to profit from your summer holiday

It’s summer holiday time, and although it may seem strange, now may be the perfect time to take steps to increasing  the value of your business.

In a job, you get fired for taking too much holiday, whereas if you own a company, the more holiday you can take without impacting your company’s performance, the more valuable your business will be.

The most valuable businesses are the ones that can survive without their owner. A buyer will pay a premium for a company that runs itself, while a business that is dependent on its owner should expect much lower offers

This summer, consider taking an extended break from your business to see how things will run when you’re not around. It’s likely that some things will go wrong, but use those errors as the base for making your business operate more independently of you – and therefore more valuable.

Here is a five-step plan for profiting from your time off this summer:
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Do you own your job or own a business ?

The ultimate test of your business can be found in a simple question: would someone want to buy your company?

Whether you want to sell next year or a decade from now, you must be building an asset someone would buy – otherwise, you have a job, not a business.

Here are eight ways to ensure you are building a company, not just doing a job:

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5 Strategic reasons to buy

Facebook has recently acquired Internet messaging service WhatsApp for £11.4 billion. It represents the largest-ever acquisition of an Internet company in history.

WhatsApp is a certainly a great product. I know because my youngest is travelling in Australia and uses it extensively. The messaging service allows users to avoid text-messaging charges by moving texts across the Internet instead of the mobile phone carrier networks. This can save people who travel, or who live in emerging markets, hundreds of pounds a year, which is why WhatsApp is adding one million new users per day.

At the time of the acquisition in February 2014, WhatsApp had acquired some 450 million users. Their business model is to charge a subscription of £6 per year after their first full year of service. Even if all 450 million WhatsApp users were already paying, that is still not much more than a quarter of a billion in turnover. Why would Facebook acquire WhatsApp for a number that is over 40 times turnover?

We don’t know for certain but we can only assume that at least part of the opportunity Facebook sees is the opportunity to sell more Facebook ads because of the information they glean from WhatsApp users. Global advertising giant Publicis estimates 2013 online advertising spending in the US alone to be around £300 billion. Presumably Facebook believes they can get a larger chunk of the global online ad buy because they know more about its users by owning WhatsApp.

And therein lies the definition of a strategic acquisition. Most acquisitions run a predictable pattern of industry standards, but a strategic buyer can pay a significant premium for your business because they are looking at your business for what it is worth in their hands. Rather than forecasting out your future profits and estimating what that cash is worth today, a strategic buyer is calculating the economic benefit of grafting your business onto theirs.

There can be many strategic reasons why a big company might want to buy yours. Here are a few to consider with some big company examples;

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Family Businesses are the most trusted

The 2014 Edelman Trust Barometer, which focusses on levels of public trust around the world, has just been published. Its key findings include that (with the exception of Asia) family owned businesses are THE most trusted, outpacing other SMEs and private companies, ‘big business’ and state-owned businesses.

This report follows an earlier one by the Institute for Family Businesses (IFA) which suggests a number of reasons why family firms are not just popular with consumers: businesses buyers are particularly keen on them, too. Why?

Closely linked reasons for popularity

The IFA report found that family-firm owner managers run businesses with an eye to the long-term. They are much better at continuing to invest during recessions and take more modest salaries and dividends, preferring to reinvest instead. They also command greater staff loyalty. These factors help family businesses to build strength in depth – and develop the high levels of trust revealed by the Edelman survey.

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Will your business be more valuable this time next year ?

For many, the new year is a time of rebirth and resolutions. It’s a month to reflect on last year’s achievements and to set goals for the year ahead.

Some people will set personal goals like losing weight or stopping smoking, and most business owners will set goals that focus on hitting certain turnover or profit targets. But if your goal is to own a more valuable business in 2014, you may want to make one of the following resolutions: Continue reading