Upward trend in divorces could impact value of businesses

Upward trend in divorces could impact value of businesses

During the past decade the annual divorce rate has averaged around 107,000 in England and Wales and 10,000 in Scotland, but this year could reach 140,000 across the UK as the cost of living, wider economic challenges, and the impact of the Covid years bear heavily on relationships.

This upward trend in divorces will seriously affect the values of family businesses and SMEs due to the close personal relationships that usually exists between directors or family members, immediate or extended, and key shareholders.

The risk of relationship breakdown is often overlooked but must be factored into contingency planning so the full value of a business can be protected. It is not just the sale price that needs protected – it is also jobs, values and business relationships.

Divorce and fractured personal relationships can seriously damage business valuations, market appeal, and the sale value. Unfortunately, the whole of the UK will witness a significant number of divorces this coming year, many of which will involve entrepreneurs running family businesses and SMEs.

The risk of further changes to taxes arising from the sale of a business will be encouraging owners to accelerate any sale. However, anyone thinking of marketing their business for sale should ensure that divorce and relationship risks are fully addressed and assessed. The risk is much reduced if it is out in the open.

To help business owners and their advisors tackle relationship issues and valuations in a structured manner, Azets is focusing on addressing succession planning with business leaders, with a focus on:

• How relationship breakdowns affects business and asset valuations
• Common objectives, age gaps, personalities and personal values
• Founders children becoming involved and falling out
• Investors running from failed relationships
• Personal vendettas driving rushed sales.

We are encouraging business owners looking to protect their business, workforce, and stakeholders to create a matrix of relationship risks so that divorce and conflict issues can be fully assessed.

Relationship breakdowns cause wealth destruction and risk to the underlying business. The most effective approach is to engage a family business specialist who will facilitate a thorough review and ensure consensus on the objectives. The UK is set for a rising divorce rate but with open planning and communications the financial impact on business sustainability and or sale can be sensibly managed.

We are here to help

If you have any questions on the possible impact on your business, please get in touch with a member of our specialist team or your usual Azets advisor.