The BizExchange Index for the March quarter reveals a dramatic drop in the number of businesses for sale. Not only is this the first drop in volume in over two years, it is a plunge of 33% in the quarter.
In reality, the reduction in the number of businesses for sale started late last year, however it was hidden by the fact that many business listings online do not expire for several months. Now that these have not been refreshed it is quite apparent that business owners have postponed their retirement plans.
The other thing that the March quarter results have confirmed is that business owners are not prepared to accept unreasonably low prices for their business. This has effectively put a floor under the value of businesses.
Business buyers waiting for prices to reach the bottom can start buying now as prices are not going to get any cheaper. In fact, with the thawing of the financial markets making funding available to businesses once again (see www.bizloans.com.au for more detail) business buyers are now in a position to act.
The market sentiment has also bottomed, with fewer people expecting prices to go lower, and more opting for prices to remain at current levels, although the net sentiment is still near the record low set in December.
It is important to remember that the major decline in business values occured before the global financial crisis, and was caused by a fundamental market imbalance as the volume of businesses for sale tripled without any substantial increase in the volume of buyers.
Even the dramatic drop in volume seen in the March quarter still has the overall volume at more than twice the level it was two years ago.
Business owners may well have set a floor price for business, but the fact remains that over 40% of Australian businesses need to be sold in the next decade as baby boomers retire. Any reduction in volume of sales in the short term will result in a larger volume of businesses being on the market in the medium term.
Baby boomers might have decided to work on for now, but they are going to need to plan their exits very carefully if they are going to successfully fund their retirement.
A free copy of the summary version of the BizExchange Index is available from www.bizexchange.com.au.
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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