Why business valuations have dropped after the 2024 Budget and what you can do about it
Many business owners are already grappling with the recent budget changes, including increases in minimum wage levels, National Insurance (NI) contributions, and Capital Gains Tax (CGT) on business sales. However, for those considering selling their business soon—or even those currently in the process—there’s a further consequence to consider. It hasn’t made as many headlines but: the value of your business may have just taken a significant hit.
An owner we spoke to estimated that his staffing costs will increase by £600,000 due to recent changes. Even with a conservative valuation multiple, this would lower his business’s valuation by at least £2 million. For owners counting on their business as a key retirement or reinvestment asset – this can be a tough pill to swallow.
So why have Business Values dropped?
Most businesses are valued using a multiple of their adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). With rising labour costs due to minimum wage hikes and other staffing expenses, profitability has taken a direct hit. Lower profitability, when multiplied by the standard valuation multiple, results in a sharp decline in overall business value.
Driving growth and efficiency to lessen the impact
The best way to counteract this impact on business value is through a strategic, proactive growth plan. This shouldn’t just focus on sales growth alone. You should take a holistic approach that considers innovation, operational efficiency, and smarter staffing strategies to offset increased costs.
Areas to focus on could include:
- Cost optimisation: finding ways to increase efficiency in operations to reduce labour and operational costs.
- Product and service innovation: enhancing offerings to justify potential price increases, increasing profit margins.
- Technology and automation: leveraging technology to streamline processes and reduce dependency on labour.
Support for strategic planning
If these changes are leaving you uncertain about the value of your business, or you’re interested in exploring ways to maximise it in today’s climate, we’re here to help. Our team specialises in strategic growth planning tailored to your business. We’ll work with you to create a roadmap that supports profitability and strengthens your company’s long-term valuation.
Contact the herd for a no obligation, confidential discussion about your business