Record numbers of small businesses up for sale as they sit on the edge of collapse

Once again private business sales listings have increased in the December quarter, with the BizExchange Index for Private Business Values reporting a 13% rise in sale listings, reaching record levels.

The report coincided with findings from accountancy firm Taylor Woodings, which suggested business insolvencies were expected to remain high over the next four years.

Perth managing partner of Taylor Woodings, Mike Ryan, told a roundtable yesterday that more small and medium-sized businesses were “sitting on the edge” of collapse.

“We expect an increase in insolvencies at the smaller company end, due largely to attrition.

“We do not see 2013 being any better for businesses than 2012 and possibly a bit harder,” Ryan said.

BizExchange chairman David Bird told SmartCompany it was hard to tell how many private businesses were for sale because they’re not all advertised, but what is advertised was a good example.

“We’ve seen the advertising numbers rise dramatically over the six years,” Bird says.

The BizExchange report found the percentage of businesses with EBIT (Earnings Before Interest and Tax) values between 1 and 2 remained fairly steady from the previous quarter.

The quarter also saw some softening in prices, particularly businesses with turnovers of $500,000 to $1 million and $5 million to $15 million.

For the March quarter, BizExchange predict an increase in business failures and unemployment figures.

In terms of market influencers, Bird says business owners like to have certainty and the sales patterns suggest they have been responding to global conditions.

“Well, it’s just the general uncertainty as to what’s happening in the world economy.

“There is a huge debt problem and they’re trying to manage down the debt in Central America and Europe.

“A recession works its way around the world and people who own a business are always looking ahead,” he says.

Bird says the impact of the American and European debt levels in conjunction with conflicting signals from China and unrest in the Middle East have led to wary business owners.

These conditions BizExchange suggest indicate economic recovery for private businesses will take longer than previously expected.

Bird says the high Australian dollar has also affected businesses.

“It impacts on exporters, making it difficult to sell into foreign countries. But it also makes input costs here lower.

“It’s a positive and a negative at the same time, depending on if you’re an importer or an exporter,” he says.

But these global conditions are not the only ones influencing business sales.

Bird says demographics are increasingly having an impact because of the Baby Boomer “bubble”.

“Many businesses were formed during the Howard government years and demographically we’ve got more people reaching retirement age,” he says.

For young people in business, Bird says it’s easier to buy an existing business than begin a start-up because of capital costs.

Some industries, such as the retail and tourism sectors, are likely to be particularly adversely affected.

“Retail is under a lot of pressure and there are probably quite a few more business sales in the small retail end,” Bird says.

As well as the retail and tourism sectors, Bird says the mining and construction industries have been struggling.

“Construction has gone off the boil.

“The mining industry has had a major lift in activity and that’s starting to run off.

“The economy is not as bright as people in Canberra think it is,” he says.