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The Outlook for 2022 and how it effects your business.

An Outlook for 2022 was published by The British Chamber of Commerce (“BCC”). In December 2021.They predict for 2022 growth, household consumption, investment, unemployment, inflation and interest rates.

In this post I wanted to set out for you the key points in the 2022 forecast. The full report is available on the BCC website. I will give my thoughts on what you should do. The high-level comments are based on what I would do in your place if I had a plan to leave my business and move onto the next chapter of my life.

Growth

Their Outlook forecasts UK GDP growth for 2022 have been downgraded from 5.2% to 4.2%. For 2023 the growth rate has been upgraded from 2.1% to 2.3%.

What would I advise a business owner to do?

I see several forecasts showing growth in turnover in 2022 and 2023 above these benchmarks. There is nothing wrong with this assumption. However, if it cannot be substantiated then how are you going to justify these rates of growth to a buyer?

Here are some suggestions:

  • A Customer Relationship Management system (“CRM”) is a good place to start. It ought to have the data on customers, their buying habits and predictions for the future. Such a system will provide evidence to support the assumptions.
  • There are several ways to grow a business. More existing products or services to existing customers and new customers is a good place to start. New products or services to existing customers is riskier. While new products or services to new customers is an even greater challenge.

Household consumption

Their Outlook predicts a rise of 6.9% in 2022 and 2.7% in 2023.

What would I advise a business owner to do?

With all the current uncertainty, 6.9% growth this year looks high. It is based upon 2021 being low resulting in a bigger uptick.

  • Would you go to a football match if it did not have a scoreboard? It was Warren Buffett who said, “If you can’t read the scoreboard, you don’t know the score. If you don’t know the score, you can’t tell the winners from the losers”
  • I would make sure your sales figures are available within hours of the closing period. That is at least daily if you are in retail whether online or not.
  • Dig deep into the numbers to understand what is going on. What are the numbers telling me? Which are the important ones? Can you make decisions based upon these numbers?
  • Compare the numbers to your own forecasts, If, you have any (You should have these if you are looking to sell your business), are you on track to deliver those forecasts? If not, why not? Where the forecasts too optimistic?

Investment

Their Outlook expects investment to grow by 5.1% in 2022 and by 2.6% in 2023.

Background

From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:

  • a 130% super-deduction capital allowance on qualifying plant and machinery investments
  • a 50% first-year allowance for qualifying special rate assets

The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest.

What would I advise a business owner to do?

I would never let the “tax tail wag the tax dog”.

Some businesses see the need to invest and this has been encouraged by the introduction of the super deduction.

There are two issues here:

  • Remember it will take nine months after the year end to recover the corporation tax deduction unless you are placed in a tax loss position by claiming the super-deduction; and
  • the investment must make commercial sense.

By this I mean how is the investment going to enhance the value of your business. How quickly will a return be made when you come to sell it. Will it be in IT infrastructure; systems and processes or vanity projects?

Unemployment

Their Outlook expects a UK unemployment rate of 4.1% in 2022 and 3.8% in 2023.

What would I advise a business owner to do?

I hear finding the right employees is extremely difficult in these times. As Jim Collins said in his book “Good to Great” you need to get the right people in the right seats in the bus to turn your business into a great one.

Easier said than done and it is unlikely to become easier in the short run.

Employees

As Julian Richer of Richer Sounds wrote in his column in the Sunday Times Business news on 23rd January 2022, (“My five magic steps for a more motivated workforce”), employees are your most important asset. The most important step being loyalty. “We expect so much from our people – so surely it’s only right to be loyal to them at every opportunity?”

The other four steps he recognises are being pleasant, recognition, communication and rewards.

So, retaining the right ones is equally important as recruiting the right ones.

Systems, yes, I know it sounds horrible. Standard Operating Procedures (SOPs) make a business more viable. They cut down repetition and, I feel, empower employees as they know what to do. Likewise, they can make processes more efficient and by engaging employees in the process could improve their working experience.

It is often said: hire people with attitude and train them in the ways of your business. SOPs enable you to do this and so make your business more viable and more likely to attract an offer from a buyer.

Inflation

The Outlook is CPI Inflation is expected to peak at 5.2% in Q2 2022. Inflation is then expected to drop back to the Bank of England’s 2% target in Q2 2023.

It means that we are in for a longer period of inflationary pressures than in the past few years. Consider how this will affect margins. Those businesses that can pass on price increases to their customers are regarded more highly by buyers.

If you are looking to sell your business soon, I am reminded of what Warren Buffet said in May 2010. He was in front of the United States of America Financial Crises Inquiry Commission formed by Congress in 2009 to investigate the causes of the financial crisis, both globally and domestically. He said:

“The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”

What would I advise a business owner to do?

So, consider your ability to raise price, too. I would though go further. Look at the margins on the products and services you sell. The exercise will determine which are more profitable than others. Likewise, I would also look at your customers’ profitability. How much working capital is tied up in each, that’s stock and debtors? Who pays the quickest and do you make money out of them? Who pays the slowest and how much money do you make out of them?

Interest rates

The Outlook for the UK official interest rates are expected to start rising again in February 2022 by 15 percentage points (“ppts”). This will be followed by a second-rate rise of 25 ppts in November 2022. A further interest rate rise is expected in 2023 of 25 ppts.

Official Bank rate is currently 0.25 ppts (or 0.25%), so by 2023 it could be as high as 0.90%.

What would I advise a business owner to do?

  1. Review all contracts in relation to borrowings to see (a) if they are subject to variable rates and (b) if so by how much.
  2. Check your credit score and find out how you can improve it. I can do this for you and advise on the ways to improve it.
  3. In the case of overdraft facilities, then check when the renewal date is. How ready are you for that meeting and how strong is your position when you come to negotiating the renewal facilities with your bank? Again, I can help you here.

The sale of your business is a life changing event

At any point in time, some one could come along and make an offer for your business. That’s good news.

What is not good news is where you or, as more likely, your business is not ready. It could be a real problem.

Why?

Once you are sucked into selling, your eyes look to the future more golf, sailing, walking or whatever.

If negotiations fail or due diligence reveals a showstopper, you lose momentum. You must start again by picking yourself up. and it is difficult to drive growth.

So, if I asked a room of business people: “Do you want to sell your business?” a few hands might go up. If I asked, “How many would like to know they could sell your business if and when you are ready?” I guess a lot more hands would go up.

So, always have an exit in mind.

It’s not about selling the business as such. It’s about building a more valuable company.

To do this you need to plan. The sooner you start the process, the more attractive and valuable it will become.

Otherwise, you will find there are more factors pushing you out of the business than pulling you away. This position will make the business less attractive to a buyer even if an offer is made.

If you feel you want to talk about starting the planning process, then I would be happy to have a call with you without obligation if you feel this would be of value to you.

I look forward to hearing from you.

Further reading

If you would like to read more of the Overview of Selling a Business, please return to this page on the website.

If you would like to listen to a Podcast on Anchor about my services, then please click here and open the hyperlink.

Assynt Corporate Finance Limited, Chartered Accountants, is a member of The Corporate Finance Network which means we can access additional Corporate Finance resources, particularly in the areas of advertising businesses for sale discreetly and accessing those lists for our clients who want to acquire business.

The information contained in this briefing is based on information available as at the date posted and may be subject to amendment. It is written as a general guide and is not a substitute for professional advice. You are strongly recommended to obtain specific professional advice from us before you take any action. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this briefing can be accepted by Assynt Corporate Finance Limited or its employees.

Need Help? Contact Andrew at Assynt:

If you are serious about selling your business, contact Andrew to arrange an informal chat, in person or over the telephone to assess the options open to you.

You can also contact Andrew by email at: awatkin@assyntcf.co.uk or by completing the form on this page.

Call today on 07860 898452

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