New research published today finds that the typical UK SME is worth more than £2.9m and that company valuation is something that two-thirds consider to be a huge priority; something they think about all the time.
Interestingly, businesses in the education sector whose average valuation is the largest amongst all UK SMEs (at £4m) are the most worried about valuation, with 4 in 5 owners enduring sleepless nights as a result.
In addition to company financials, business owners cited their premises, product and people as key factors that contribute to company value. Larger SMEs (by revenue and headcount) were more likely to put emphasis on their premises as the largest component of their valuation, whereas smaller SMEs felt this lay more in their product.
Whilst company valuations are clearly a high priority, less than a third of businesses increased in value by more than 10% in the last 12 months. Owners ranked a lack of appropriate finance options as the largest hurdle in raising value and growing their businesses. Companies in the engineering, architecture and construction sectors felt this the most. In contrast, companies in the finance sector ranked skills shortages as their greatest hinderance.
Business owners were reluctant to cede control to Dragon’s Den-style equity or venture capital investment, with only 6% having used this kind of funding to boost growth and valuation. Rather, more than a quarter favoured invoice finance, followed by asset-based finance. Only one in ten (10%) would turn to a traditional business loan.
Anil Stocker, Co-founder and CEO of MarketInvoice, who carried out the research, commented: “Business owners seem to be driven by company valuation but acknowledge how the right kind of finance can really help drive that number. It is imperative that they stay focused on their product or service offering and ensure the fundamentals are right first. This is as much about managing cash flow and working capital as it is about having the right people in the right roles. A well-oiled business will look after itself. Essentially, getting the basics right will drive their businesses forward and the valuation will take care of itself.”
Businesses in the Midlands, North East, Yorkshire, Scotland and Northern Ireland felt invoice finance was the go-to source of funding to accelerate growth and increase valuation. Asset-based finance was favoured by businesses in London, South East, Wales and North West.
Simultaneously, business owners felt becoming more tech-savvy and data-centric to support their scaling ambitions would be the biggest driver for increasing valuation. Interestingly, larger SMEs felt expanding their customer base would drive the most value. Younger entrepreneurs vest hopes in their products to drive valuation, whilst the older generation felt technology adoption would move the dial.
Businesses are optimistic about the future despite Brexit turmoil, with over half hoping to open offices abroad and to start exporting to global markets. Smaller SMEs are more driven by this ambition than their larger counterparts.
Stocker added: “UK SMEs are thinking big, which is great for our economy, employment and global positioning. There are some huge macro and political changes taking place with Brexit and the US-China trade challenges but it’s great to see entrepreneurs seeing the growth opportunities around these events”.