With the baby boomers retiring in droves, it’s a buyer’s market for SMEs. That makes it all the more important to be on the ball when it comes to exit planning.
Limited data has been collected on the sales of Australian SMEs. But what information is available makes for sobering reading for any business hoping to find a deep-pocketed buyer for the enterprise to which they have devoted years of their lives.
Here are a few figures to keep in mind if you’re hoping to fatten your super balance through offloading your enterprise.
- There has been an 800 per cent increase in the number of SMEs on the market over the last decade. At any one time, there are around 60,000 Australian businesses for sale.
- The average ‘multiple’ business owners make from selling their business had declined to 1.55 by early 2017. So, if your business makes a before-tax profit of $100,000 a year, you’ll struggle to sell it for more than $155,000.
- Over 5,000 baby boomers are currently retiring every week. That figure will continue to climb over the next decade, peaking at over 6,000 boomers retiring every week by 2027-2028.
How to beat the odds
Most SME owners take the same less-than-professional approach to selling their business that they have to starting and running it. So, while the overall picture may be dispiriting, it’s still the case that smart operators can pocket a tidy sum on the way out the door.
Koos Kruger is a chartered accountant and founder of Business Companion. Below, he shares what he has learned from providing exit-planning advice to hundreds of SME owners.
Tip one: Make the decision to sell. Today
The best time to come up with an exit plan is before you launch a business. The second-best time is as soon as possible after that.
“Owners assume that they’ll be able to orchestrate the timing of a sale,” Kruger says. “But on the basis of my experience and the data I’ve seen, slightly over half of all businesses are put on the market due to one of the 4Ds. That is, divorce, disease, disputes or death.”
Let’s assume you’re lucky enough not to have to worry about such misfortunes. Kruger points out that you may still want to sell your business sooner than planned.
“Individual lives, businesses, industries and economies all go through cycles,” Kruger notes. “It’s rare that all those cycles line up neatly. An owner might have to sell earlier – or later – than planned to take advantage of an industry upswing or avoid an economic downturn. You want to sell when your business is growing and your industry is booming. Hoping conditions will be favourable when you hit retirement age is risky.”