Growing numbers of SME owners over the age of 55 are about to start looking to sell their businesses but they may be in for a rude surprise, according to research published yesterday by accountancy firm PwC.
PwC analysis estimates that at June 2024, a third of the 1.54 million private business owners will be over the age of 55, the “baby boomer” generation.
During the next 10 years more than 1.4 million owners employing over 7.9 million people and contributing almost $500 billion in GDP, are expected to retire.
PwC warns a lack of exit planning by this ageing population of small business owners could have serious consequences on the owner’s wealth; the business’s productivity, employment and even survival; and cause a ripple effect throughout the economy.
PwC partner Sue Prestney told SmartCompany the coming upsurge in business sales will be driven by “the baby boomer generation getting to retirement age” and also business owners who were planning on exiting earlier but were affected by the global financial crisis.
“Prices fell dramatically then and people weren’t prepared to sell in that market,” Prestney says.
“We have this pent-up wave of sales which has been compressed into a shorter time frame than it needs to be.”
Prestney says business owners need to plan for their exit and not expect to achieve the best exit they possibly can with a very short lead time.
“There will be some people who have no options other than to close the doors, but what we want to be sure of is that is minimised,” she says.
PwC is calling for the government to do more to assist business owners looking to sell.
“Financial assistance for strategic exit planning advice, incentives for business innovation prior to sale and a reduction in the current taxation barriers that act as a disincentive to succession, such as reform to the current Employee Share Scheme, will go a long way to helping owners transition their business,” Prestney says.
But David Bird, chairman of Biz Exchange, says incentives from the government are unlikely to help business owners and instead he wants financial infrastructure to be looked at.
“One of the problems with succession is problems with getting access to finance to buy businesses. Banks are still very gun-shy and there needs to be a mechanism that makes it easier for people to borrow money for business purposes,” Bird says.
He says for baby boomers, selling their business is “an emotional decision”.
“They certainly don’t plan, they weren’t expecting to sell their business, they were expecting to hand it on,” he says.
Bird advises baby boomers looking to exit their small business think beyond selling to family members and consider selling perhaps to Asian owners who might be in the same line of business.
The latest BizExchange index recorded a “modest rise” in private business values for the December Quarter.
This rise was more pronounced for large businesses with turnovers above $5 million.
But Bird expects these values will be impacted by the looming oversupply of businesses for sale.
“Values could soften in the near future,” he says.