As the recession eases, surviving business owners are turning their thoughts
to the perennial question: Is now the best time to exit my enterprise? Particularly
with the aim of achieving optimum value and beating to the market the anticipated
flood of hundreds asking the same question.
While the latest ASB Succession Planning Monitor reveals the ‘good time to sell’
index remains fairly static—with most business owners surveyed believing now is
not a good time to sell— respondents are changing their perceptions about what drives
the value of their business.
ASB’s chief executive, relationship banking, Stewart McRobie says the impact of
the economic recovery could well be influencing the results. “For the past year
we have seen business owners battening down the hatches and putting off selling
their businesses for the foreseeable future, or at least for the next five years”
he says. “In the March quarter, the focus of this survey, we have seen a six percent
increase in the number of business owners saying they are considering selling their
business in the short term. Almost 20 percent now say they may sell within two years,
as opposed to 14 percent last quarter.”
This shift in sentiment is significant, he says, but also cautions that the next
six months will be crucial to really gauge whether forward momentum is sustainable.
Sellers, and more importantly buyers, seem to have a more realistic notion of the
value of their businesses and are seeing indicators of prices improving. Over the
past six months, the number of owners indicating the market value of their business
is less than $250,000 has been dropping and is now down to 33 percent.
This could be a result, says Stewart McRobie, of the recovering economy generating
more certainty that business values are increasing again.
A record 24 percent of owners indicated that the market value of their business
lies between $250,000 and $500,000 (up from 18 percent). Other values cited in the
findings include prices between $500,000 and $999,000 (14 percent); $1 million to
$5 million (14 percent); and more than $5 million (five percent).
While opinions on the value of businesses have changed, so too have the drivers
of that value.
For the first time since the survey began, profit is now considered the most important
factor determining business value at 89.2 percent of respondents, a rise of seven
percent. This could be a result of profits stabilising as the economy improves.
Customer base is the second most popular determinant of value at 88.8 percent. The
state of the economy also increased in importance by seven percent to 70.8 percent.
If information and advice-seeking are signposts of an increased renewal of activity,
then succession planning seems to have returned to the corporate dance card. It
is not just any type of advice that is now being sought—the study’s findings show
a renewed level of certainty about just what sort of guidance is needed when it
comes time to sell. Larger businesses tend to consult with a lawyer as part of the
advisory mix while smaller businesses ask accountants to lend them their ears.
Sellers and buyers are seeing
indicators of prices improving.
The number of owners indicating
the market value of their business
is less than $250,000 has been
dropping, and a record 24 percent
of owners indicate the value of their
business lies between $250,000
The reasons for seeking a helping hand are varied. Business owners are likely to
accept that potential purchasers are now more discerning and they certainly have
greater choice in their targets. The more a seller’s affairs are in order, the higher
the value they might hope to secure. Even though a sale is not on the immediate
horizon if business-related issues are not managed well, or contained, then the
window of opportunity down the track may be missed.
The key is to work with advisers early, rather than postpone attention to a later
stage. Bank managers can help work through matters related to borrowing, cash flow
management and foreign exchange contracts.
The survey also reports that:
- There has been a large increase (12 percent) in the number of business owners who
are planning to speak to their accountant for advice on exiting their business.
- The main driver of this trend is small business owners, with 80 percent saying they
will consult their accountant (an increase of 14 percent). Their lawyer came second
at 45 percent.
- In larger businesses there was a ten percent increase in respondents saying they
will speak to their lawyer, at 69 percent. Accountants still ranked first at 80
There was also a decrease of five percent in those business owners who said they
did not know who they would seek advice from, and a three percent decrease in those
who would have sought advice from sources other than their accountant, lawyer, business
broker, bank relationship manager or commercial real estate agent.
Encouragingly, the results show a significant drop in business owners planning to
close down and sell their assets (11 percent), and an increase in those with plans
to sell to a current staff member (12 percent).
The most popular means of realising the value in a business was through selling
to an unidentified buyer, at 27 percent, followed by sale to a targeted buyer outside
of the business, at 22 percent.
In a nutshell
- The ASB Succession Planning Monitor
- reflects the economic recovery
- Businesses are increasingly looking to sell in the shorter term
- Owners’ perceptions of business value are changing
- Profit is now considered the main driver for business value
- Owners more likely to look to their accountant or lawyer for advice, and more certain
of where they will seek advice
- Business owners can reap rewards if they plan early. Businesses with their plans
in order can seize opportunities and realise the best value from their business