UPDATED: September 01, 2019
Business market news -- are we facing a tsunami of businesses for sale in Australia?
Business Review Weekly (BRW) published a controversial article on 25 Feb 2015 that claimed, 'Why Some Baby Boomer Business Owners May Retire With Nothing!'
Retire with nothing? (Shocking business market news perhaps...)
And the Sydney Morning Herald (SMH) also wrote years earlier (2011) in 'Sell sell sell: baby boomers approach retirement':
'Twenty two per cent of business owners are aged 60 and over, which means hundreds of thousands of businesses are going to be sold or shut down in the next three to five years.'
In the next three to five years? How about the next 10-20 years. Baby boomers are delaying retirement and staying in their businesses much, much longer because they can't afford to retire, or they simply cannot find a buyer.
So is all the gloom and doom really that bad for business owners?
Is this really a buyer's market?
Well, there are 5.5 million baby boomers born between 1956 and 1965 in Australia, and we are witnessing a wave of approximately 800,000 baby boomer business owners retiring and selling their businesses.
A plethora of supply will inevitably push prices down.
In the same article, SMH also explained, 'Business owners who understand how to ready their business for sale may achieve a strong sale price, but those who do little to prepare can expect an average sale price of a 1.5 multiple of their profits, most probably through a careless business broker.' (2011)
Fast forward 8 years. If a supposedly careless business broker in 2019 is able to sell your business at 1.5x multiple of profits (or EBITPDA, Earnings Before Interest, Tax, Proprietor's Salarty, Depreciation and Amortisation), you would be laughing.
For good micro, small or medium businesses, the payback multiple could be less than 1x of annual profits for some industries.
How about businesses with problems? Well, they simply get given away, forced to shut down, or get sold at a fire sale.
This problem is compounded by valuations from other 'professionals' that don't meet the market. For example, accountants or solicitors may use a valuation method to appraise a price that no sane buyers can accept,.
The only valuation that really counts is the price that meets the market and a price the buyers can accept. Buyers are now spoiled for choices.
The over-supply may last for perhaps another 10 to 20 years. Unfortunately this doesn't just affect baby boomer business owners looking to sell. Any business owners looking to sell their business are affected.
Good businesses can still command a good price because the demand for these businesses haven't weaned. Buyers are still willing to pay good dollars for good businesses. This just means that you have to rise above the competition.
The problem is that most business owners 'think' that their business is good when it isn't. Their concept of a 'good' business is very one-dimensional - if the business makes good profits, it must be good. Or if the business has potentiality to scale, it must be good.
In today's market, the business must meet buyer requirements on 8 to 10 criterias. For example, a business needs to be (1) profitable, (2) have excellent verifiable documents and (3) a system to create low dependency on the owner. Most micro and small businesses fail on the later two criteria even if the business is profitable.
Suffice to say, most micro, small and medium sized businesses have little idea on how to ready their business correctly for sale. It can take years to prepare a business for sale (for example, most buyers expect to see 2 years of Profit & Loss Statements submitted to the tax office. To get this ready will take 2 years, if the previous 2 years haven't been accurately reported)
For many micro, small and medium business, the business broker is faced with businesses that just aren't ready or able to attract buyers. However, most businesses fall into this lot and competing for the same buyers. It just isn't a good look.
A small handful of businesses have done the groundwork and prepared prepared their business for sale properly. One of the ways to make this happen is to work with competent advisers.
Against a tsunami of businesses competing for the same buyers, you will need professional help.
You are likely to need the help of good accountants, lawyers, bankers/finance brokers, leasing consultants, management consultants, business brokers, and any other specialists that can help you in your mission to sell the business.
You along with specialist help should recognise the correct price that meets the market, make changes to the business if necessary, and ensure that your business tick all the boxes for the buyers and thus secure your expected price.
For example, if your business isn't performing to expectations, then hire an external management consultant to analyse your operations and make decisive changes to improve key indicators before listing on the market.
Or if your business is in retail and have problems verifying the turnover, then meet with a consultant to replace your cash register and CRM to enhance your capability to keep accurate and trustworthy record of transactions.
This is a buyer's market, only if you let it be.