The selling tsunami has begun, with the baby boomers putting their businesses on the market. But while the volume of businesses being offered is increasing, Gen-X and Gen-Y are struggling to finance the business purchase, according to the September report from BizExchange, an online marketplace for business sellers, buyers and investors.
The volume of businesses being advertised for sale continues to grow, up 12% on the previous quarter. But BizExchange chairman David Bird, says the flow of the baby boomer-owned businesses coming on to the market is starting to emerge and will place downward pressure on prices.
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He advises retiring owners to consider amalgamating with like businesses to enhance sales values if possible.
He says that while there is a growing evidence of increased institutional funding available for mid-range businesses, the small business owner is likely to be reliant on selling their business to an owner operator.
“With Gen-X and Y unable to access their superannuation savings to purchase a business, and already heavily in debt due to high housing prices, funding of the business purchase is going to be an ongoing issue.”
Bird also says that baby boomers who operate in industries where there is a high number of franchises should be wary. “Franchising appears to be adding further downward pressure to business prices. There appears to be a correlation between the volume in franchises in an industry and the very low valuations for small businesses in those industries.”
The number of businesses on offer without real estate assets is increasing. Those with property assets are often offering the property as an option with the sale.
The decline in business value is most notable at the smaller end where businesses for sale at earnings multiples of less than one are now part of the business landscape.
The number of businesses with turnover of less than $1 million represent 80% of the market.
The larger the business, the higher the earnings multiple. This continues to provide opportunities to consolidate a number of smaller businesses to increase the earnings multiple, which is one of the reasons the private equity firms continue to participate in this market.
Bird says that while the presentation of financial figures for businesses for sale are getting better in quality, some inconsistencies remain. For example some businesses are presented with the owner’s salary, including in the earnings figures, distorting the earnings of those businesses.