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Small is Beautiful

Fri Jul 01 2022

Small (and Medium) is Beautiful

99.9% of businesses in the UK are classified as small or medium and they play an important role in terms of employment, innovation, and in the economy generally, contributing almost half of all private sector jobs. 

The pandemic has ignited the UK’s strongest start-up boom in a decade and the success of these businesses is going to be critical to rebuilding the economy to face the challenges of the future. Most entrepreneurs start from scratch with very few considering the alternative of acquiring an existing business. This is often because of the perceived risk, cost, and complexity.

There are lots of advantages in acquiring an existing business as much of the groundwork has already been done, for example:

• A market for the product or service will have already been demonstrated

• There may be established customers, a reliable income, and a reputation to capitalise and build on

• There will be a useful network of contacts

• A marketing method should already be in place

• Existing employees should have experience you can draw on

• Many of the problems will have been discovered and solved already

Many people want to sell their (successful) businesses on retirement, but if they can’t they end up winding them up. The biggest factor standing in the way of someone thinking of an acquisition is usually the worry about not being able to afford to do so. However, you don’t always need to use your own money to buy a business. Sellers will often delay receiving part of the sale proceeds and wait a year or more, in order to facilitate a sale.

Whilst loans are often difficult to obtain for newer or smaller businesses there are currently two schemes that can be used to successfully access funding more easily:

The Government backed British Business Bank supports entrepreneurs with Start Up Loans. These can be used for purchasing an existing business, provided you have been trading for less than two years. The programme offers loans (from £500 to £25,000 per director, at 6% interest) alongside free mentoring and support. In addition, the Government Recovery Loan Scheme can be also used to provide resources within a company looking to sell that could subsequently be used to fund an acquisition. As there are no personal guarantees for loans of less than £250,000 in this scheme, these can more readily be taken on by an acquirer.

An accountant who specialises in smaller acquisitions and disposals will be able to support you through the acquisition process by tailoring their advice appropriately to the size of transaction. If you have a great business idea how much faster could you achieve your long terms goals, by using your skills and ideas in an existing business?

This article was written by Chris Kelly of Jacobs Allen Chartered Accountants 

Look at the range of support MENTA offer to established small businesses as well as emerging micro businesses and freelancers. 

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