According to the latest BizExchange Index of Private Company Values, the number of small businesses for sale has achieved a new record.
Keeping up with the trend registered in the last quarters, the September quarter BizExchange Index shows that Australian business owners continue to try to sell their businesses while market sentiment remains negative.
According to David Bird, BizExchange Chairman, among the several factors which are contributing to a negative market sentiment are the softening of major commodity prices, the uncertainty regarding world economy, decreasing inbound tourism and the fall of residential property values.
“Widespread cost cutting and growing retrenchments are reinforcing a cautious approach by consumers. Their common sense approach to reduce debt in times of uncertainty could exacerbate any downturn in Australia,” said David Bird.
“Smaller businesses are usually the first to feel changes in economic conditions.”
The value of the small business on sale has also achieved and all time low because the market is overflowed with so many business owners trying to sell their companies. The Index shows that three out of four listings have EBIT ratios below two, while over half the listings have EBIT ratio between one and two.
With many business owners looking forward towards retirement and pass their businesses to younger generations, the problem seems to be that younger generations, being already in debt and unable to access their superannuation savings, can’t currently afford to buy businesses from the older generations, even at low prices.
“The implications for business owners approaching retirement or needing to exit are ominous. Downward pressure is very likely,” said Bird.
Photo by Amanda Slater