Business development · 10 November 2017

Average value of a small business in Britain tumbles to £90,000

The value of a small business is dictated by factors like turnover and net profit
The value of a small business is dictated by factors like turnover and net profit

The average value of a small business in the UK has fallen by £4,000 in the last 12 months, according to a new study of valuation data.

Using data from three years’ worth of business valuations, amounting to almost 7,500 companies, transfer agent Bizdaq was able to present sales trends and assumptions on why the average worth has fallen.

Business values are calculated using turnover and net profit, so the sudden decline could point to both increased costs for owners and reduced consumer spending power.

Despite the year-on-year slide, the latest figure remained higher than that registered in 2015 (£89,000).

The research revealed significant discrepancies between business types. The average value of a traditional British café dropped 15 per cent to £45,000, while coffee shops had in fact risen £3,000 in value to £65,000.

Elsewhere, small manufacturing businesses registered an average worth of £418,500 – an increase of £100,000 in just 12 months.

Read more: A due diligence guide for business buyers and sellers

Commenting on the data, Sean Mallon, Bizdaq CEO, said the “frustrating” reduction in value was leaving small business owners with “diminishing levels of return on their hard work and investment”, but suggested it was an expected consequence of economic uncertainty.

“A business’ value is in many instances tied to revenues, and particularly profit, so falling values may be indicative of a fall in these across the board, with a recent rise in interest rates putting further strain on the UK’s small businesses,” Mallon explained.

“Profitability decreases in a small business is often attributed to an increase in its variable costs, such a business rates or utilities. With this being the case, I would urge the government to work harder to relieve the strain on small business owners and allow them to make a fair return on their hard work. This should include allowing them to protect their investments through tax allowances when exiting their small business.”

As small businesses in the North of England dropped just slightly in value – from £80,000 to £79,000 – the overall average was brought down by significant depreciation in the South of England, a £6,000 decline to £91,000 in the last year.

Meanwhile, small companies in London witnessed some of the greatest value drops in Britain. On average, businesses lost £20,000 in worth in the last 12 months – from £115,000 in 2016 to £95,000 in 2017. The decline is five times greater than the £4,000 national average and paints a worrying picture for founders in the capital.

“It’s interesting to see the differing values from region to region, and surprising how only short geographical boundaries can make a large difference to a business’ value. London in particular has seen a dramatic swing in values over the past year,” Mallon concluded.

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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