Is it nearly time to start buying?
Wednesday, December 10, 2008/
Business prices haven’t been this low for a long long time – it’s a real buyer’s market right now. ANDREW KENT
By Andrew Kent
The most recent BizExchange Index revealed business prices hit a new low as baby boomers looking to retire try to sell into a buyers’ market.
Another key finding was that the growth in the volume of businesses listed for sale had slowed, suggesting that lower prices and an excess of businesses for sale was making current owners think twice about selling, which indicates that there is a price point at which a retiring business owner would rather close the business than sell it.
This point appears to have been reached with the first reduction in over 12 months in the number of business for sale at less than one year’s earnings.
With the global financial crisis making it even more difficult for potential buyers to raise sufficient capital to fund the purchase, the market is likely to see an increase in the time it takes to sell a privately owned business.
The small business owner is likely to be reliant on selling their business to an owner operator. With Gen-X and Gen-Y unable to access their superannuation savings to purchase their own business, and already heavily in debt due to high housing prices, funding of the business purchase is going to be an ongoing issue.
Another factor beginning to have an impact on business sales is the possible implications of a slower economy on future revenue projections. In a buyer’s market this directly translates into lower prices.
The availability of purchase finance and uncertainty around future earnings may be behind the negative market sentiment (see graph below). This is the most negative the market has been since December 2006, and is painting a very gloomy picture for baby boomers looking to fund their retirement through the sale of their business.
Andrew Kent is a director of BizExchange, an independent marketplace for business for sale or seeking investment. BizExchange has a directory of independent advisers and business brokers and information on valuations.
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