anonymous ethnic couple sitting on sofa having marriage issues

Entrepreneurs Should Prepare For Divorce

DIVORCE WARNING – The values of family businesses and SMEs will be seriously affected by the upward trend in divorces so entrepreneurs and business owners are being advise to be prepared, just in case.

Problems with personal relationships are now having a significant impact on the values of businesses and should be factored into the planning process for selling or passing on a business, a leading expert is warning.

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.

Murdoch MacLennan, Partner at UK Top 10 accountancy firm Azets, said: “The values of family businesses and SMEs will be seriously affected by the upward trend in divorces 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 affect 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.

Murdoch MacLennan added: “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.”

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