Nervous time for business market
Thursday, January 31, 2008/
It will be a brave person to switch from one entreprise to another now, but it will be just this sort of person that will be Australia’s next generation of business owners.
Last week’s turmoil on stock exchanges around the world provided a clear signal of how interconnected economies have become. One of the interesting components of this is how long it is taking for the impact of the US credit crunch to ripple out into other markets. The private business market is also going to take a hit.
The majority of private business sales include debt finance as part of the funding mix. With the global credit squeeze making this harder to get a loan, potential buyers have less money to spend. This will place downward pressure on business prices that are already in decline.
The December issue of the BizExchange Index shows that the flow of baby boomers into retirement continues unabated, increasing the number of businesses advertised for sale. This is a continuation of a year long trend that has seen prices fall by over 25% compared to the same time the previous year. The frightening fact is that a significant number of this generation of business owners are relying on the sale of their business to fund their retirement, and for many small business owners this could be less than a year’s earnings.
Adding a credit tightening to a market already in decline, there is little doubt businesses will be harder to sell than they were one to two years ago. Baby boomers contemplating selling may need to give serious consideration to their timing. With many businesses taking six months or more to sell, it is certainly worth getting the sale through before booking the holiday.
In any given market there are usually winners and losers, however the next generation of business owners will be struggling to capitalise on this buying opportunity as many of them have their personal finance under stress from large home-mortgages. With home prices climbing at record rates and business values falling, it will be a brave person to switch from one form of investment to the other now. But it will be just this sort of person that will become Australia’s next generation of business owners.
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