Where are the 1980’s start-up entrepreneurs now?

May 3, 2023

How ageing entrepreneurs impact valuations, employee incentives and probate…

Did you know…

…there are now over 260,000 small medium and large businesses in the UK with more than 10 employees?

The number of micro businesses with 1-9 employees is now around 1.2 million.

And then there are partnerships and sole proprietors with employees which adds another low hundreds of thousands.

Looking at these latest figures, I can’t help feeling that this will lead to a lot of demand for share incentive schemes in whatever form they might take! (More information next week on the statistics on this area of activity.)

But right now I’m more curious about the generation of companies incorporated in the 1980s…

A quick search of Companies House Advanced Search showed that over 77k private limited companies were incorporated during this period and are still alive. This compares with the 1970s where only 34k incorporated during that decade are still alive today.

Doing a search of the 1990s I discovered that there are over 171k which are still trading today.

The 1980s and 1990s boom in entrepreneurship is well known, but the longevity of so many of the companies formed in this period is interesting is it not?

Of course many may still be sole traders, but I think it’s safe to assume that many thousands of these have founders still in situ who are now reaching retirement age.

And this sizeable group of ageing 1980s entrepreneurs is going to hit probate teams when founders’ and angel investors’ estates need to get valuations for Business Relief (remember that is the one opportunity to reset the Capital Gains base line for the heirs!)

Indeed our team is doing more and more valuation work on and around rearrangements of capitalisation tables so that founders’ and their families can make sure their businesses are handed over to the next generation.

So a valuation exercise needs to be carefully handled.

The last thing anyone wants is a probate dispute or questions over whether a transaction was completed at fair value.

Whenever we are instructed in these scenarios we make sure we carefully consider the interests of all parties and potentially interested parties and contextualise the valuations accordingly.

This means taking extra care to explain in detail the reasons for the fair value assessment. Also, if necessary, thinking forward and discussing the issue of how value could grow or shrink in the future.

The importance of the management team can be a critical issue.

If the right team is not in place to manage the business, the only likely scenario will be that value depletes over time. A wise move would be for that team to be incentivised.

Sometimes family members who are not involved are happy to take cash now, but where they remain shareholders it is important to think about what future dividend streams might look like and also the potential for a lucrative trade sale.

We always encourage founders and management teams to think about how to prepare interested parties for the ramifications of a change in ownership and/or control of the business.

If required we can explain the issues in our report to help these discussions go smoothly. We are also happy to chat to those parties to explain it all.

The good news is that our valuation reports can also be used as part of the general wealth planning exercise. Having an independent opinion on a business today and the plausible range of values for it in the future gives useful clarity to all.

If you have a client who needs to plan or arrange the move of part or total ownership of a business or another income generating asset which may or may not at some point be subject to a trade sale, we would be very happy to help.