Murdoch MacLennan

During the last decade the annual divorce rate in Scotland has averaged around 10,000 but this year could reach 12,000 as the cost of living, wider economic challenges and the impact of the Covid years bear heavily on relationships.

Problems with personal relationships are now having a significant impact on the values of businesses and should be factored into the planning process for selling or passing on a business.

Murdoch MacLennan, partner with Azets, said: “The values of family businesses and SMEs will be seriously affected by the trend due to the close personal relationships that usually exists between directors/family members immediate or extended and key shareholders.

“The risk of relationship breakdown is often overlooked but must be factored into contingency planning so that the full value of a business can be protected. It is not just the sale price that needs protected it is also jobs, values and business relationships.

“Divorce and fractured personal relationships can seriously damage business valuations, market appeal and the sale value. Unfortunately, Scotland like the rest of the UK, will witness a significant number of divorces this coming year, many of which will involve entrepreneurs running family businesses and SMEs” added Murdoch MacLennan.

“The risk of further changes to taxes arising from the sale of a business will be encouraging owners to accelerate any sale. However, anyone thinking of marketing their business for sale should ensure that divorce and relationship risks are fully addressed and assessed. The risk is much reduced if it is out in the open.”

To help business owners and their advisors tackle relationship issues and valuations in a structured manner, Azets is focusing on addressing succession planning with business leaders and can cover:

• How relationship breakdowns affects business and asset valuations
• Common objectives, age gaps, personalities and personal values
• Founders children becoming involved and falling out
• Investors running from failed relationships
• Personal vendettas driving rushed sales

Mr MacLennan continued: “We would encourage business owners looking to protect their business, workforce and stakeholders to create a matrix of relationship risks so that divorce and conflict issues can be fully assessed.”

He concluded: “Relationship breakdowns cause wealth destruction and risk to the underlying business. The most effective approach is to engage a family business specialist who will facilitate a thorough review and ensure consensus on the objectives.

“Scotland is set for a rising divorce rate but with open planning and communications the financial impact on business sustainability and or sale can be sensibly managed.”