Will the disposal of Entrepreneurs' relief deter Salesforce Partner sales?

All of us in the Salesforce world have come to grow accustomed to Salesforce partners springing up, growing rapidly, and being acquired by the perceived bigger Consulting firms or PE organisations.

It’s a sign of a healthy marketplace when businesses can launch, grow, and exit to a bigger fish, or by MBO.

The process of a Salesforce partner growing at pace and being acquired creates a tidal wave of recruitment for companies like Steadman Brown, but this also means Salesforce professionals also benefit.

It’s not just those professionals who join a partner that benefit from this. By partners growing fast, they are almost forced to recruit from in-house positions, which creates backfill opportunities for the next wave of talent coming through, and this trickles down the Salesforce ecosystem, even if you are not working for said mentioned Salesforce partner. 

With all that in mind, I think we’d be hard pushed to find someone who is anti-market growth, and against the prospering of SF partners in particular. Which brings me to a recent change in UK policy outlined in the recent chancellor’s budget, which I think could have a damming impact on UK business, but in particular the SF partner space. 

Some of you may have heard of BADR (Business Asset Disposal Relief) or what is more commonly known as Entrepreneurs Relief.

For those who don’t know, in short, when a business owner sells their business, the tax office comes knocking, hard! However, BADR previously limited tax on exit earnings at 10% of the first £1m. 

In the recent budget, Chancellor Rachel Reeves confirmed that this percentage will increase to 14% next year, and then 18% the following year. Dramatically changing the landscape for many small/mid businesses whose owners had plans to grow and exit. 

Now this is not a Labour bashing. The Conservatives also played a part in breaking this once pro-growth policy 7 months ago, then Chancellor Jeremy Hunt announced he was scaling back the BADR cap from £10m to 1m.

Within 7 months the market for a business owner has changed dramatically. Business owners at the point of sale went from being limited to paying 10% on business sales of £10m to now paying potentially 18% of £1m.

While all this may sound out of reach / not impactful to many, the collateral damage these charges over the past 7 months will have may be huge.

Business owners and leaders are inherently pro-risk, especially those that have ambitions of growing and exiting over time. Everyone knows that the bigger your business can be in terms of headcount, revenue generation, and gross profit creates a higher valued business.

However, if the incentive upon exit is greater tax, then what encouragement does that give Business Owners to take risks, hire more people to increase market share, chase bigger deals to push the comfort zone barriers further, and generally focus on growing their business? All these factors create opportunities for people within the business to move upwards, as well as open headcount for new hires. The growth of a business is not of benefit to a single person, everyone in that company gains.

Are these changes going to cause either a fire-sale in the next few months pre-April changes or are we going to see a stark drop in the number of businesses selling over the coming years?

In my professional opinion, I think this will have a major impact on business with a single owner whose turnover and/or valuation falls in that £1m-10m bracket, which puts an awful lot of Salesforce partners bang in this category.

Now, of course, we will still see acquisitions happen, but there will certainly be business owners who think ‘What is the point’ of further expansion and will batten down the hatches whilst the economy stabilises and hopefully, this policy is either remodelled or reversed.

Only time will tell…