Covid-19 forces over four in 10 SMEs looking to sell to put sale plans on hold

SMEs across the UK have had to tear up business succession plans due to COVID-19, according to research from Nucleus Commercial Finance. Prior to the pandemic, over a third (35%) of SMEs had hopes of selling their business in the next two years, but these have been significantly impacted with many having to shelve their plans.

Of those who were looking to sell their business, a quarter (25%) have put plans on hold because their finances have been negatively impacted, while a fifth (21%) have stalled because the value of the business is not what it was prior to COVID-19. By contrast, one in five SMEs (20%) have paused the sale because the business is now performing better than it was before the COVID-19 outbreak.

The research also revealed that SME owners have no desire to step away from the business post-sale. Nearly seven in 10 (68%) of those who were hoping to sell still had plans to be involved in the business after the sale. Selling to a competitor and remaining at the business was the most popular option (23%), while over one in 10 (13%) want to sell to a family member and continue involvement. On the other hand, just under a third (31%) plan to have no involvement in the future once they reach a point of sale.

Reaching the point of sale

For those who are pausing the sale of their business, the average delay is 17 months as many need to invest significantly to get to the point of sale once again. In order to fund this investment, seven in 10 (70%) will be using external finance, with a third (33%) planning on taking a loan out with an alternative lender and one in five (20%) using a loan from a bank. The top three reasons for taking out external finance include product development (48%), making new hires (44%) and investing in new technology (33%).

Chirag Shah, CEO, Nucleus Commercial Finance, said: “SME owners across the country have faced their toughest few months since the global financial crash. Not only has COVID-19 significantly impacted the day-to-day operations of their business, but now with increased market uncertainty, many business owners have been forced to reevaluate future sale plans.

“Reaching a point of sale is a huge milestone for any business owner, requiring both sheer determination and time. As such, the delay to this process is a big emotional burden, in addition to the ongoing financial and operational challenges they are already facing.

“Looking ahead, business owners need to think carefully about their strategy, and, crucially, how to reach a point of sale again. This, however, isn’t something they need to go at alone as there is help at hand. Whether it be to develop new products, hire more staff, or invest in new technology, the alternative finance industry can play a big part in supporting businesses to reach their goals and navigate through this challenging environment.”