Average time to sell a business stretches out as finance dries up

A new survey has shown the average time to sell a business has stretched out from 15 to 21 weeks as buyers struggle to get the finance needed to seal the deal.

The survey by 2,500 clients of LINK business brokers also found the delays in obtaining finance were pushing down sale prices, with the average price dropping from $400,000 to $225,000.

“This is significant and makes it hard for business owners,” LINK managing director David Fitzgerald says.

“But also for the average buyer who is taking almost nine months to find a business that is suitable or that they can afford.”

While the survey shows a 39% increase in the number of interested business buyers, 38% of buyers have had to re-evaluate the types of businesses they can afford due to tightening lending policies, and 44% of buyers said the biggest problem is getting finance from the banks.”

Overall, 81% of business owners and buyers have had trouble obtaining finances.

“That’s quite substantial because the average purchase price in a business has come down substantially,” says Fitzgerald. “It was at about $400,000 and it has now come down to around about $225,000.”

“The banks have been reluctant to lend money. They’re making it hard for them and almost talking them out of it,” says Fitzgerald.

The stretching of sales times comes at an important time for the business sales sector.

Leigh Riley, author and succession planning expert says a huge 41% of Australian businesses are expected to be sold in the next five years as most owners near retirement age – the largest shift in business ownership in Australia’s history.

“The marketplace is clearly going to see a lot of businesses changing hands,” Riley says. “While the ageing population indicates that there will be fewer available buyers – so the next few years are going to be challenging for business owners looking to sell.”

Riley also warns of the effects this will have on the Australian workforce and economy.

“Given small business employ around 40% of all Australian workers, if a number of small businesses were to cease operation because they were unable to sell, Australia’s economy could be directly affected.

“Struggling businesses may also fall into the hands of overseas buyers which could have implications on prices for consumers and quality of goods or services.”

The LINK survey showed that there is increasing interest from overseas buyers in Australian businesses, but Fitzgerald says this is a good thing.

“We had so many countries that are looking to buy businesses – over 103 countries,” he says.

There are lots of people looking to migrate to Australia and this gives Australian business owners more option. It’s is a positive thing.”

The LINK survey also reported that import and wholesale distribution businesses are in demand, with 36% of buyers looking at the sector while interest in the usually popular café and restaurant industry is down 12%.

Fitzgerald also says franchises have decreased in popularity, with only 28% of people interested in purchasing one.