Bridging the gap between the budget and your business

Building towards a successful sale

The UK government’s 2025 budget was one which they gave clues about in drips and drabs for weeks in advance, and then it came all at once. In fact, it came early. Not from them, but accidentally from the OBR. Needless to say, it wasn’t a normal budget. So, does that mean it’s no longer business as normal and that you need to completely reassess the path your business is on and how you will successfully exit?

Not necessarily. Explore the implications of the latest budget, be clear on what has and what hasn’t changed, and stay on track in our latest blog with input from Initium CEO, Jonathan Dunn, and Associate Director, Charles Ainslie.

The headlines

During her budget announcement, Rachel Reeves was keen to reiterate that the government was on the side of growth and entrepreneurs (much like us as exclusively sell-side financial advisors). She also balanced that ambition by stating that she was having to take necessary action to lower the borrowing burden of the country whilst rebuilding national services. Opposition, such as the Conservative Party, instead viewed it as purely a welfare handout, implying that businesses had been forgotten.

Whilst remaining politically impartial, let’s look at the announcements which will impact businesses, and in time, potentially their sale.

What has changed and what it means for businesses…

With private businesses employing more than 80% of the working population and SMEs regularly being credited as the backbone of the British economy, it should come as no surprise that the budget will affect many business owners…

And their employees

Inflation is slowly coming down but we haven’t seen deflation in the UK for over 60 years. The result? Prices are still going up, and with them, the expectation for salaries to rise too.

When paired with the fact that this budget froze tax thresholds until 2031, employees who receive salary increases due to inflation will end up falling into a higher tax band. Consequently, despite the intention of salary increases being to stop price inflation eating into take-home pay, the extra tax will reduce it anyway.

Yet with inflation having been high for so long, employers can’t expect most of their employees to go without salary increases – life just wouldn’t be sustainable. Fully aware of this, many will call the government’s decision a ‘stealth tax’. Considering that 920,000 more people will become higher-rate tax payers due to this measure, you can see why they might suggest that.

So, with employees maybe still feeling worse off despite pay increases, are business owners going to have to pay out more on salary to help their staff out? Could this eat into their bottom line, or can this be passed on to customers? Could this slow their path to a successful sale?

And their talent

Whilst the cost of employment could be about to rise due to a double-whammy of inflation and a stealth tax, the budget did announce a measure which will help business’ workforce.

Historically, young hires have sometimes found it hard to get their foot in the door in certain workplaces. Their lack of experience and the time required to train them up unfortunately works against them on occasion.

However, the government has put aside £725 million to make the training of under-25 apprentices free for small and medium sized firms, along with £820 million to guarantee paid work for 18 – 21-year-olds who are not in work or learning. This is largely an announcement aimed at young people; however, it also benefits businesses.

These measures will make it both logistically and financially easier to attain fresh ideas and tap into the mindset and priorities of younger generations. Something which businesses are eager to do considering that Gen Z will become the largest economic spending power in 2030, driving $12.6 trillion in purchases. In addition, it could help businesses boost their retention of talent as it is documented that 76% of employees who do training with a firm remain their longer.

Ultimately, although this measure won’t guarantee changes for businesses, it has the potential to lead to positive outcomes on innovation, sales expansion, increasing retainment, and reducing hiring costs.

And their tax contributions

A popular scheme, currently employed by 48% of private-sector businesses, is salary sacrifice. Its popularity hinges on the fact that it produces a win-win situation for both employers and employees – by sacrificing basic pay for pension contributions, both employees and employers reduce their tax payments.

However, the budget has reduced how beneficial this scheme is by placing a £2,000 cap on how much of an annual salary can be sacrificed. As a result, businesses will have to set aside extra money to pay a greater amount of tax, money which they could’ve been hoping to use for growth.

And their investment

Although the change to the salary sacrifice scheme will mean that businesses have less of their own funds available, they could gain capital from elsewhere. One such source is investment by the population.

Keen to shift the population from one of savers to one of investors, the government’s budget announced that whilst the ISA contribution cap of £20,000 per annum will remain, £8,000 of it will have to be dedicated to investments from April 2027 onwards.

Will this lead to a big shift in activity across the population? Who knows. Will it be enough to benefit firms? Well for some it might but not all – considering that you can’t easily invest in most businesses.

And their payroll costs

People are consistently the highest expense for businesses. Even when workers are paid a minimum wage, there are usually a lot of them on a business’ payroll. Any enforced increase in salaries can therefore make a significant difference to the margins of a business and in turn, their hiring decisions.

The government’s decision to raise the minimum wage across all ages is one such example. On paper, this is bad for businesses. However, it was also announced that train costs are to be frozen for the first time in 30 years. Minimum-wage workers will therefore be saving on commuting costs and having their wages rise.

Could these measures shift the country’s productivity problems? Could they see people spend more? Could they offset any extra payroll costs businesses will now face?

And their selling ambitions

All the above will inevitably impact the day-to-day operations and finances of a business – that is simply the nature of any budget. When it comes to selling a business, these matter. They are a large part of what buyers spend their time investigating during the due diligence process of acquiring a firm.

However, it’s not just about the perspective of buyers. The thoughts, hopes, and dreams of sellers matter too. (As exclusively sell-side financial advisors, they really matter to us.)

It will therefore come as no surprise if the latest budget is making business owners reassess whether and/or when they want to sell their company. For instance, although we only recommend EOTs for a particular type of business owner – those who are interested in securing their company’s legacy and guaranteeing a future for their employees – the budget announcement that the Capital Gains Tax relief via this exit now only stands at 50% has changed the dynamics of an EOT. This shouldn’t change the minds of most business owners exploring an EOT, but it will for some.

“Although the Budget has reduced the CGT relief from 100% to 50%, the primary reasons owners pursue an EOT remain entirely intact. Most owners choose an EOT not just for tax, but because it protects the company’s legacy, secures the future for employees, provides certainty of completion, avoids the disruptions of a trade or PE sale, and allows the business to continue independently. Even after the change, EOTs remain the most tax-efficient exit route available in the UK, while continuing to offer all their cultural, strategic, and commercial advantages.”
Charles Ainslie, Associate Director, Initium

Closing thoughts

Budgets are a regular occurrence – they are part of running a business. Sometimes they help, sometimes they hinder. Nevertheless, like every business challenge, they can be navigated.

“Business owners are entrepreneurial. Their business idea was no doubt borne out of a wish to solve a problem. And I believe they’ll ultimately view this budget in the same way – just another problem to overcome. It’s something that they’re more than capable of, so long as they have the right intelligence, expertise, and support at their disposal.”
Jonathan Dunn, CEO, Initium Corporate Finance

Being an EOT ourselves here at Initium, we are formed of heavily invested individuals. We are all responsible for the health of our business and therefore take a great interest in the likes of budgets plus macro and micro influences. It puts us in good stead for delving even deeper into relevant research when advising the various business owners we lead to successful business sales.

This year’s budget might well have been a little unconventional on its release; however, it didn’t deliver anything we haven’t seen before. If you’re therefore looking for a financial advisor that supports growth, achieves sales values consistently higher than initial expectations, and has successfully navigated budgets for over 35 years, get in touch with us today.