The Wave is Coming

By Andrew Beattie

26 August 2018

“Australia is being transformed…We are at a critical demographic turning point because of the baby boom cohort – the 5.5 million people born between 1946 and 1965 – has begun to turn 65 years of age… By 2030, all baby boomers will be 65 or older,” NSPAC 2012.

“Retiring Baby Boomers struggling to sell businesses as value of SMEs decline,” Sydney Morning Herald, 25 April 2017.

Directly proportional to the 800% increase in the number of businesses for sale over the past decade, the value of Australian small to medium enterprises (SMEs) has been trending downward for the past 11 years.

Why?

Firstly, more businesses are coming onto the market – mostly baby boomers with no family looking to succeed them. In 2012, 38% of owners planned to pass their business onto the next generation. As of 2016, it’s below 25%.

When stacked against competition, does your business stand out? Can you articulate why it should stand out? Who is your competition? What are buyers looking for?

Secondly, many businesses simply leave it too late to consider their exit strategy. More than 70% of private business owners have no exit or succession plan. It takes the average business three to five years to prepare to maximise any sale price.

A business that seems like a good investment may quickly tarnish under scrutiny, once prospective buyers ‘lift the hood’. Generally, you only get one bite at the cherry – if your business is assessed and found wanting by a potential purchaser, that opportunity is likely lost.

Thirdly, many businesses are going it alone and have not sought advice about a transition or considered available options and whether they are viable. Trade sale? Family Transition? Management buy-out?  Partnership planning?

Fourthly, many business owners have no idea what they need to retire – what after-tax income they need to support their lifestyle, or what value their biggest asset – their business – will contribute to their nest egg.

Because and even in spite of these factors, it is wise to think about being ‘sale ready’ from day one – because a business that is ‘sale ready’ is likely generating the best returns along the way. 

Don’t leave it until you are ready to sell. When you have had enough, you won’t have the energy to really get ready.

Maximising your sale price means understanding what the market wants – which is generally less risk.  There are some reasonably straightforward steps you can take but they require deliberate action.

Really, your plan needs to start at the end – what value should you realise from your business? What can it realise now? Time is your biggest ally to close any gap, providing you use it well and have the right advisers around you.

Returning to the baby boomers: it’s critical that we don’t underestimate the impact on the market for Australian businesses. Moving from a long period of asset accumulation to a significant period of liquidation means a weighty shift in the supply and demand equation.

The wave is coming!