Slow recovery weighs on business value

Media release
ASB Succession Planning Monitor

Slow recovery weighs on business value

• The drawn-out recovery is impacting on business sale plans
• Many business owners believe the value of their business has dropped
• The economy is becoming more important in determining business value

Business owners are feeling the impact of the slow and uncertain recovery, with perceptions slumping across a number of key indicators, according to the latest ASB Succession Planning Monitor.

The ASB Business Seller’s index has dipped by 10 points to a net minus 75 percent, which means that overall business owners do not think now is a good time to sell.

ASB Chief Executive Relationship Banking, Stewart McRobie, says the three months ending September 2010 have taken a toll on the perceptions of business owners.

“The impact of the slow recovery, combined with events such as the Christchurch Earthquake, Southland storm and the collapse of South Canterbury Finance, as well as the lead-up to GST increases, may all be impacting on perceptions as business owners realise the economy is not yet out of the woods,” Mr McRobie says.

“Plans to put businesses on the market have also been put back on the shelf. Only 14 percent of businesses are looking to sell in the shorter term of two years or less, down from 18 percent last quarter,  with 78 percent of respondents looking to potentially sell in three years or more, compared to 69 percent,” he says.

“The perceived value of businesses has also dropped.  There has been a sharp spike in the number of owners who think their business is worth less than $250,000, from 26 percent up to 35 percent. In total 58 percent of owners believe their business is worth half a million dollars or less, compared to 53 percent last quarter and 60 percent a year ago.”

The importance of economic factors was highlighted by business owners. “For the past year the economy has been considered the least important factor in determining business value out of those factors surveyed. This time last year only 60 percent felt that it was important, now the state of the economy is at 73 percent, ahead of brand strength at 70 percent.”

The most important factor in determining business value was customer base (90 percent) followed by profit (87 percent) staff (80 percent) and turnover and future potential and innovation (both at 78 percent).

When the time comes to sell a business, a total of 55 percent of all business owners surveyed plan to sell to an external buyer. Of those business owners, 29 percent would seek an unidentified buyer, and 26 percent would sell to a targeted buyer outside the business.

The full Succession Planning Monitor is available online.