Exit options for business owners in 2025

Given the monumental impact of political elections around the world, there has arguably never been a greater need to lead and take control of your business, to bring fresh thinking and to ensure that hope is not your strategy.

At a glance

The October 2024 Budget introduced major changes to taxes and costs associated with running and selling a business.
Although these can be seen as a real challenge, there are still opportunities for businesses that prioritise sustainability, innovation, and digital transformation.
There are a range of options for owners who plan to grow and sell their businesses in the short and long term.

The SME market in the UK in 2025 will likely face a complex and evolving legal environment. SMEs will need to stay agile and informed to navigate changes including; tax policy, labour law, data protection, environmental regulation, and access to finance.

While some regulations will present challenges, others will offer opportunities, especially for businesses that prioritise sustainability, innovation, and digital transformation.

He we examine some key market drivers and succession or exit options for businesses who want to take action:

Business Asset Disposal Relief (BADR)
Capital Gains Tax (CGT)
National Insurance (NI)
National Minimum Wage (NMW)

Business Asset Disposal Relief and Capital Gains Tax

The government maintaining the £1 million lifetime allowance for BADR means that many small business owners will still benefit from CGT relief on the sale of their businesses, but those with higher gains will face increased tax liabilities once they exceed this threshold. You could argue that this could result in fewer business owners opting to sell at higher valuations, thus potentially reducing Mergers and Acquisitions (M&A) activity.

What it should do is reinforce the leaders focus to not make tax the driver for realising value but there needs driven by the business strategic intent.

Ultimately, the £1 million cap could create a more complex and cautious M&A environment, especially for SMEs, but also may prompt innovative deal-making and tax planning strategies.

The October budget announcement of an increase in the rate of BADR from 10% to 14% as of April 2025 and again to 18% in April 2026, will have a significant. The immediate effect might be a rush of deals before the tax change, followed by a potential cooling of M&A activity as business owners adjust their expectations. Buyers could also adjust their offer prices or deal structures to account for the higher tax liabilities, potentially making M&A deals more complex and less frequent.

While the increase in CGT might discourage some sellers and create challenges for dealmakers, it could also lead to more creative deal structuring, including the use of deferred payments, asset sales, and tax-efficient financing arrangements. However, the overall effect would likely be a slower M&A market, with more caution from both buyers and sellers in the short to medium term.

In the long term, this cap could affect entrepreneurial ambition, influencing how business owners approach growth and exit strategies. We hope then, the policy leads to an increased focus on succession planning, as business owners seek to pass on their businesses in a tax-efficient manner and to maximising realisable value.

National Insurance and National Minimum Wage

While the aim is to raise additional funds for the NHS and social care, SMEs may have to reassess their workforce strategies, either by reducing headcount, adjusting salaries, or increasing prices to maintain profitability. Overall, the NI changes add complexity to financial planning for SMEs, requiring careful management of payroll and staffing costs at all pay levels. Elephants Child have already seen budget reductions impacting growth and supply chain initiatives and pay rises being frozen or reduced.

When you then add the impact of NMW and combine this with all of the anticipated costs associated with the proposed changes in workforce regulation. SME leaders have no option, in our opinion but to fully understand the cash and profit impact of these increases. And when modelling NMW also think about impact on the pay structures that sit above this level. Can these costs be passed on? Is the business clear on cash? Do we have the right capital structure? Already, we have seen business growth plays reversed into programs of cash and cost management and cuts.

Exit options – Management Buyout and Employee Owned Trusts

Both Management Buyouts (MBOs) and Employee Owned Trusts (EoTs) allow owners to sell their businesses while potentially benefiting from lower CGT rates. A MBO does not have special tax treatment, just the EOT, as long as they meet the relevant tax relief conditions. However, the specific structuring of the transaction is key to ensuring these preferential tax rates are utilised. Both are relative quick and potentially elegant, more amicable exit solutions.

A MBO in the UK occurs when a company’s management team acquires the business they operate, typically with the help of external financing. The management team, led by senior executives, takes control of the company, often purchasing shares from the existing owners or investors. MBOs are common in privately held firms and are used as a strategy for succession planning, corporate restructuring, or to gain more control over the business’s direction. Financing for MBOs typically comes from a mix of debt and equity, often facilitated by private equity firms or banks.

An EOT is a model in the UK where a trust owns a company on behalf of its employees. The company’s shares are transferred to the trust, which holds them for the benefit of all employees, often providing a share in the company’s success through dividends or potential capital growth. EOTs are typically used as a succession planning tool, allowing business owners to sell their company while ensuring employees benefit from ownership. The model offers tax advantages, including exemption from capital gains tax for the selling owners, making it an attractive option for business transition.

These succession / exit solutions are and typically relatively quick and amicable. Our counsel is to use the opportunity well and strategically to ensure the new incumbent leaders have the strategic intent, plan, tools and support to go further.

Do we want to emphasize the importance of succession planning, especially for family owned businesses.

Why is success planning crucial in family-owned businesses?

Succession planning in family-owned businesses ensures the continuity of operations, preserves family legacy, and mitigates risks associated with leadership transitions. Without a clear succession plan, businesses may face instability, confusion, or even failure as family dynamics and competing interests can create conflicts. Proper succession planning helps identify and prepare the next generation of leaders, ensuring they are equipped with the skills and experience necessary for the role.

Additionally, it fosters transparency and alignment within the family, reducing the likelihood of disputes over ownership or management. It also safeguards the business’s culture and values by transferring leadership to someone who understands its history and vision.

A well-executed succession plan not only protects the family business but also strengthens its position in the market, as it allows for strategic planning and the continuity of relationships with customers, suppliers, and stakeholders. Furthermore, it can enhance the business’s ability to adapt to changes in the market, economy, or industry by planning for both internal leadership transitions and potential external challenges.

Ultimately, succession planning is a key to the long-term sustainability and success of family-owned businesses, preserving both financial and emotional value across generations.

Why wait?

As of now in Elephants Child small sample population; we have noted an increase in business leaders reacting to the BADR, CGT, NI, NMW and other market factors. And despite an uptick in exit activity, disappointingly many business leaders have chosen to wait.

The waiting game puts us in fear that business owners will not get to enjoy the fruits of their labour. These just rewards require fresh thinking in situations where results are static or declining. Sitting on the fence is not the answer, hoping this year will be better is not a strategy. Most SME businesses don’t sell first time around because they are ill-prepared; personal fear and embarrassment of the unknown only compound that challenge.

Growth to Exit answers don’t come through AI or Google or the notional mate down the pub and your life is too important for that. The market changes discussed here; and also things like; utility costs, labour market, wage inflation, the next recruit, that big order, spring, the Trump impact, government policy and Brexit have all been cited as reasons not to go further.