A report by online business transfer agent Bizdaq has revealed that business valuations are affected by a North/South divide – and that the drop in small business valuations has been more pronounced in the capital.
North and South
The report, which looked at nearly 7,500 small business valuations performed between 2015 and 2017, found that while the average value of a small business in the UK is falling, the South is performing better than the North. The average price of a small business in the South is £12,000 more than one in the North, where sellers could only expect to make £79,000 from selling their business as opposed to the £91,000 achievable in the South.
Worst affected are small businesses in the Shrewsbury and its surrounding areas, which only have an average value of £37,111 – down a massive 75%.
Although business values fluctuate and are heavily influenced by location, just as housing values do, the Bizdaq report points out that business values are much more closely related to their turnover and profit.
Falling values mean small businesses are facing rising costs or falling revenues, and less potential return on investment should owners choose to sell. However, it’s not all bad news. Bizdaq’s research showed that restaurants are experiencing a surge in value, and that manufacturing businesses have grown in value by nearly £100,000 in a year.
London valuations have seen an average drop of 47% in value. The current average valuation of £95,000 for a small business in the capital is just higher than the 2015 median of £94,000, though down considerably on 2016’s average of £115,000. What this means for small business owners is that should they wish to sell their business now, rather than last year, they’ll stand to make £20,000 less than they could have done.
However, even within London itself, location plays a part. Small business prices in South London are at an average of £67,000, but this figure rises to £97,000 in North London – and to a staggering £169,000 in North-West London.
Sean Mallon, CEO of Bizdaq, said:
“It’s frustrating to see that small businesses are reducing in value across the UK, leaving the nations’ small business owners with diminishing levels of return on their hard work and investment. In a period of economic uncertainty however, this is not unexpected.
“It’s interesting to see the differing values from region to region, and surprising how only short geographical boundaries can make a large difference to a business’ value. London in particular has seen a dramatic swing in values over the past year.
“A business’ value is in many instances tied to revenues, and particularly profit, so falling values may be indicative of a fall in these across the board, with a recent rise in interest rates putting further strain on the UK’s small businesses.
“Profitability decreases in a small business is often attributed to an increase in its variable costs, such a business rates or utilities. With this being the case, I would urge the government to work harder to relieve the strain on small business owners and allow them to make a fair return on their hard work. This should include allowing them to protect their investments through tax allowances when exiting their small business.”