Business owners increasingly likely to sell in short term

• More business owners planning to sell within two years
• Estimated market value of businesses is changing
• Profit overtakes customer base as driver of business value

An increasing number of business owners are planning to sell within two years, and perceptions are changing over the market value of their businesses, according to survey results released by ASB.

The Q1 2010 ASB Succession Planning Monitor reveals that although 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.

Business sale plans taking shape

• This quarter, however, 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” adds Mr McRobie.
• This is a significant shift in sentiment, even though the majority of business owners still say they are not planning to sell within the next five years. The next six months will be crucial in determining whether the tide really has turned in this respect,” Mr McRobie says.
• Encouragingly, there is also a significant drop in business owners planning to close down and sell their assets (11 percent), and an increase in those business owners 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.
• Reasons given for selling include: “Starting to come out of recession, so more buyers are available;”  We built the business up and had growth during the recession;” and “There are going to be more and more businesses coming on the market in the near future.”
• Perceptions of market value are changing
• Over the past six months, the number of owners indicating the market value of their business was less than $250,000 has been dropping – now down to 33 percent. This could be a result of the recovering economy generating more certainty that business values are increasing again,” Mr McRobie says.

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 includedÊ between $500,000 and $999,000 (14 percent), $1 – $5 million (14 percent), and more than $5 million (5 percent).

Profit has become the most important factor determining business value.

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 7 percent. This could be a result of profits now stabilising again for some businesses 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 7 percent, although at 70.8 percent still lies behind the other factors surveyed,” Mr McRobie says.

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