Are we are on the verge of a massive business transition in New Zealand as baby boomers sell their companies to help fund their retirements? A recent ASB customer survey found that one in four business owners is planning to transition out of their business in the next five years. If even close to a quarter of New Zealand businesses are going to change hands between now and 2023, what will this mean for the small business marketplace?
- First, it means opportunity and choice for buyers. There won’t be just one small legal practice or local building company for sale, there will probably be several. Buyers will have the chance to compare and contrast businesses, as well as having more room to haggle. Traditional industry multipliers may fall as supply increases.
- Second, will banks need to rethink their lending? Currently banks love real estate, but they’re hamstrung in many ways by lending restrictions. Businesses? The banks are certainly interested, but it’s more like the old ‘cap in hand, please give me a loan, sir’ days of yore. I would like to see more lending to business because I believe it genuinely creates value in our economy, unlike increasing house prices.
- Third, business owners will need to be ready for picky buyers who want as much information as they can, who may need help with finance, and who may also need their hands held as they take over. In a competitive environment, you’ll need to make your business stand out from the crowd and spell out what makes it worth buying.
If you are one of the tens of thousands of small business owners who is planning to retire in the next five years, don’t be overconfident. When you do your retirement planning, it would be a mistake to have an inflated view of your company’s value and its saleability. Get your company valued by someone who knows what they’re doing – and I mean really valued, not just somebody saying ‘multiply your annual sales by three’ or some other vague number. Then you need to have a plan in place to step back from your business in order to realise that cash so you can spend it travelling through Asia or collecting art or simply paying for your everyday living expenses for the next 30-odd years.
Don’t leave your succession planning to take care of itself, because it most certainly will not.