The number of entrepreneurs under the age of 40 selling their businesses has increased by 23% in the last year, rising from 4,719 in 2019/20 to 5,803 in 2020/21, according to new research by Hazlewoods, the chartered financial planning and business advisers.
Recent years have seen significant success stories for young UK tech company entrepreneurs selling their businesses to PE/VC funds, alongside consolidation across various other sectors, including veterinary, healthcare and financial services.
These deals formed part of a strong period of private equity-led dealmaking in the UK from late 2020 to mid-2022. The year ending April 5 2021 saw under-40 entrepreneurs sell businesses worth £1.03bn.
Andy Hogarth, financial planning partner at Hazlewoods, says: “In the last few years, a lot of young entrepreneurs in the UK have become extremely wealthy by building their businesses and exiting them, often to PE. These figures show just how successful those exits were.”
Andy Hogarth says those selling their businesses will need to carefully consider their exits – both before and after the deal is made. He says: “Having sold their businesses, many of these young entrepreneurs now have new opportunities, including potentially retiring early. However, it’s important to consider how the change will impact their income, pension planning and tax position.”
Hogarth says that tax efficient investment management is vital for those who have exited businesses. “Sellers need to think long term by investing sale proceeds in tax efficient funds. Inflation will often erode the value of funds held in cash, meaning through investing these monies it will provide individuals with the opportunity to grow their funds in real terms, or the potential for a more sustainable income stream.
“Often cash flow modelling can help with contextualizing matters and provide insight for these individuals to help them in making decisions on their next step. Those selling their businesses will often have different objectives with the funds and need to consider their affairs holistically, including the impact of the sale on their dependents.
“Post-sale, the cash from the sale of a business becomes part of their estate, making it potentially subject to inheritance tax, whereas If the business had been passed on before sale, those assets would normally be exempt from IHT.”
