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Older business owners are selling out. But younger business owners can’t afford to buy. What does this mean? Low business valuations.


According to the latest  BizExchange Index, the volume of businesses for sale has increased in the first quarter of 2011, potentially driven by an aging population. However, younger generations are not in a position to buy.

The volume of businesses for sale has increased during the first quarter of 2011 after a fall in the previous quarter, says the latest BizExchange Index. The rise in the volume of businesses for sale also means an increase in the number of companies with an EBIT ratio between two and three. However, over two thirds of them still have a EBIT ratio lower than two.

“There was a slight upturn in values under $500,000 turnover and over $5 million turnover, while values in between remained flat,” said David Bird, BizExchange Chairman.

“At the smaller end, Retail, Hospitality and Transport were weaker while Wholesale and Construction were a bit stronger.”

According to the quarterly report,  the market sentiment remains negative though business prices remain stable.

“Overall sentiment for the future improved slightly but remained negative. This reflects continuing uncertainty resulting in consumer caution,” said David Bird.

Generational gap

According to the Index, the volume of businesses for sale is expected to increase in the future as many business owners seek retirement and pass their business to newer generations. In fact, many business owners seem to be delaying retirement as some might feel that selling their businesses in today’s market will attract an unfair sale price.

Equally important is the observation that younger generations seem to be unable to buy the businesses from older generations. Younger generations are already heavily in debt due to high house prices and are unable to access their superannuation savings which, combined with the negative market sentiment, makes very hard for them to buy businesses from the older generations.

The high number of businesses for sale combined with this negative market sentiment will keep the price of businesses in the market relatively flat and many business owners may find it hard to achieve the valuations they desire.

The BizExchange Index is a quarterly report on Australian businesses for sale and investment costs.

Photo by Hunter Nield