Brexit is a challenge to lots of businesses.

But how does the director of a UK firm, who may want to sell the business, understand its worth in the context of the headwinds of the current geo-political climate?

Adam McGiveron, a Brexit specialist and head of the advanced manufacturing sector at law firm Shakespeare Martineau says it may be difficult to do so with ‘considerable disruption’ to enterprise expected over the next five years, particularly if impacted largely by imports and exports.

He says, ‘Taking steps to support the valuation is a worthwhile investment and is therefore essential to persuade the buyer.’

He says that with significant uncertainty still surrounding the UK’s trading position post-Brexit and elements such as customs tariffs to consider, individuals seeking valuations over the next few months may face new challenges in convincing buyers of their business’ true value.

‘The most commonly-used method of calculating a business valuation involves taking the organisation’s EBIT (earnings before interest and tax) and determining an appropriate multiple, which will vary depending on the sector and where the business is in its growth cycle’, McGiveron says. ‘A number of risks associated with Brexit could impact both parts of the equation, which would in turn reduce a business’ overall valuation. For example, for companies heavily reliant on imports from the EU, tariffs would likely reduce their EBIT and a lack of confidence in the UK economy may reduce the multiple number from say a 6 to a 5.’

He says that the fall in the value of sterling seen since the EU referendum result could impact company evaluations. ‘While this is likely to increase costs for net importers, net exporters may find their markets increasing as their products become less expensive overseas.’

How Brexit challenges will be overcome

One way that a UK company could convince investors to invest is by proving that they have a solid plan to overcome Brexit related challenges, which will generally come in four key areas; the direct and indirect supply chain, financial resilience, regulatory frameworks and HR although this will vary depending on the organisation’s individual structure and the extent of overseas trading.

For example, identifying potential weaknesses across the supply chain early will allow businesses to consider appropriate mitigation steps and incorporate these into the information memorandum.

‘Businesses undertaking significant importing or exporting activity may look at switching to domestic suppliers where possible to counteract likely customs delays and tariffs.’

Management team key

McGiveron says a strong management team, always vital in business life, has become more important than ever. ‘With the risk of any pre-sale volatility putting off interested parties, recruiting the best possible people in the first instance and looking after the talent that comes through the business is essential,’ he says.

He adds, ‘Moreover, with skills gaps in some industries becoming exacerbated due to a potential reduction of overseas workers, businesses should always ensure job candidates have the permanent right to remain and, where necessary, help to secure their security in the UK by assisting them in sorting out necessary paperwork.’

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‘For businesses reliant on overseas labour, devising workable methods of incentivising people to stay in the organisation will also play an important role in this.’

‘For any business looking to sell up, getting the right expert advice should be a key priority’, McGiveron urges. ‘It goes without saying that the sale of a business for £1 million will be vastly different to one for £100 million, and the type of advice required will also depend on the organisation’s individual business model.’

He concludes, ‘By carefully thinking through how they plan to address post-Brexit challenges and engaging the right team of advisers, business owners can put themselves in a good position to win over potential buyers in the lack of an accurate valuation and realise the company’s true value.’