Melbourne tipped to lead SME sales recovery

Small business sales are tipped to recover in 2011 with Melbourne leading the way as a buyers’ market, according to business broker LINK.

After a sluggish 12 months, LINK managing director David Fitzgerald says there appears to be more confidence and more money in the marketplace.

Referring to figures from the Australian Institute of Business Brokers, Fitzgerald says business sales were down nationally by 70% last year, a situation exacerbated by natural disasters.

However, he says the market has been helped by overseas interest in Melbourne, and interest in franchises in Sydney.

“They are selling better in Melbourne than anywhere else,” Fitzgerald says, attributing Melbourne’s strong performance to its attractiveness as a destination for business migrants.

Fitzgerald says he’s finding that business migration has “slowed in Queensland, a little bit in Sydney but seems to be picking up in Melbourne.”

This, in turn, has increased demand for SMEs, particularly coffee shops, newsagents and franchisees.

In Melbourne, LINK says the average sale price is $400,000 to $600,000 for retail businesses like coffee shops. Four to five years ago, Fitzgerald says such businesses would have sold for $800,000 to $900,000.

However, he warns the banks are not responding to the falling sale prices.

“The banks are still making it very difficult for people to borrow money to buy businesses; it’s almost as if the banks don’t recognise goodwill,” he says.

Non-retail businesses in the manufacturing sector are also selling, but not in the numbers recorded in retail due to their size and cost.

In comparison to Melbourne, Fitzgerald says South East Queensland has been particularly hurt by recent natural disasters and a lack of buyers from New Zealand.

New Zealand buyers traditionally account for 15% of sales but will now fall in at under 1% as currency movements reduce the attractiveness of Australian businesses.

Despite this, Linkara founder Lindsay Karathanassis says there has been a “massive pickup” in the market in the past 12 months, with large buyers now willing to acquire smaller businesses.

But Hurst Partners, a Victorian business broker, is not so upbeat on current conditions and the economic outlook.

Principal Rob Hurst says the market is “very twitchy” and the banks aren’t helping the situation, failing to provide adequate funding.

He says there has been weakness for the past 12 months and the market is unlikely to lift until consumer confidence takes a positive turn.

“People’s confidence has been knocked about by news overseas and local disasters. They’re skirting around it but they seem to be nervous,” Hurst says.