Business owners: Short term sale plans still on hold

Business owners: Short term sale plans still on hold

• More than half of businesses still not planning to sell before five years
• Customer base most important indicator of business value
• Almost a quarter of businesses not ready for unexpected succession events

Business owners remain cautious despite signs of a gradual economic recovery, with more than half still not planning to sell their businesses until after at least five years, according to the latest ASB Succession Planning Monitor.

ASB Chief Executive Relationship Banking, James Mitchell, said the proportion of business owners who might sell their business after five years was the largest since the survey began in Q3 2008, climbing 14 percent since the lowest recorded level of 40 percent in Q4 2008.

”Businesses can’t yet see much of a window of opportunity in the short term,” Mr Mitchell said. “However with the recession easing, there are some indications that some could be setting their sights on selling after five years. This means now is the time for those businesses to put  in place plans to ensure they are well prepared when the time comes.”

Sentiment around business sales generally was also changing. There was a net increase of 13.4 points to -62.9 on the overall ASB ‘Business Seller’s Index’, which indicates an increasing number of businesses think now is a good time to sell.

Their reasons included: “Because our performance is above what the rest of the economy is doing;” “because the business is very healthy at the moment;” and “we think the economy will be better by next year.”

This positive increase on the index is a trend spanning three quarters. However it is important to note that overall the score was net negative, indicating the majority of businesses still believe now is not a good time to sell.  “Our results show that overall the sentiment remains cautious – with business owners looking to longer timeframes before they might consider selling up,” Mr Mitchell said.

Customer base key to business value

Customer base was considered the most important factor in determining the value of a business, with close to 90 percent of all respondents consistently ranking this above other value-drivers, including profit and product/service range.

“The importance of customer base is an ongoing trend that has been unaffected by the recession,” Mr Mitchell said. “Small businesses in particular place the most emphasis on their customer base as driving the value of their business, as this is where they see the most potential for growth. Larger businesses, on the other hand, placed marginally more emphasis on profit in determining business value. Interestingly, the least number of businesses rated the state of the economy as being most important.”

Businesses not ready for unexpected events

Over the past four quarters, almost a quarter of businesses have indicated they are unprepared for events such as unexpected illness, the departure of a business partner or a sudden offer from a new buyer.

“A total of 23 percent of the business owners we surveyed in Q4 felt they were not ready for those events that might trigger a sudden change in business ownership. Smaller businesses in particular were the most unprepared,” commented Mr Mitchell.

“Businesses need to be ready for succession and incorporate it into their long term plans. It could involve simple steps such as ensuring you up-skill an employee to cover essential business responsibilities during an illness, or it could involve more complex financial preparations. We advise businesses to seek professional advice to get their affairs in order, just as you would prepare for unexpected events in your personal life.”

“ASB has tools to help business owners through all business cycles, including a succession planning workbook, expert advisers and support services to help plan ahead,” Mr Mitchell noted.

 ENDS