SME valuations hit record high of $1.4 trillion in June with more businesses looking to sell

Small and medium business valuations hit a record high of $1.4 trillion in June before the latest wave of COVID-19 lockdowns hit businesses across Australia, fresh data from Australia’s biggest succession planning advisory firm shows.

New research by Succession Plus found the total value of Australian SMEs was $1.437 trillion at the end of June, or an average of $605,079 per business. And while owners sat on record values for their businesses, many were looking to sell, with listings up 5.86% since the previous quarter.

But valuations are expected to have plummeted over July and August, following a new wave of public health measures in New South Wales, Victoria, South Australia and Queensland in response to the Delta strain of COVID-19.

Craig West, chief executive of Succession Plus, says the new lockdowns will certainly affect business valuations because “uncertainty is the enemy of any small business”.

“If there’s uncertainty around, buyers are wary and more particularly lenders are wary and cautious,” West tells SmartCompany.

The research is part of the Succession Plus’ Value Potential Index, which is a quarterly snapshot of the value potential of 2.4 million Australian small and medium businesses.

The index is based on data held by the advisory firm as well as economic factors, industry trends and business sentiment.

West says after the nation-wide lockdown last year, the index crashed to about 200 points in June before climbing to its current 627.30 points one year later.

“Then we had this massive bounce back when we thought we started to get COVID under control, in September to December, when businesses were opening back up,” West says.

But West expects the bounce back will take longer this time because ongoing trading restrictions have forced businesses to access their savings and the government has withdrawn financial support such as JobKeeper.

“Hopefully we’ll start to get a decent recovery as people get vaccinated but I don’t think businesses are going to have the same cash reserves as they did a year ago,” he says.

Succession Plus established the Value Potential Index to measure the gap between actual business valuations and potential business valuations.

According to the index, almost one-third of a business valuation is lost during a sale due to poorly structured succession plans, amounting to approximately $182,000 of missing value per business.