Over the next five years, thousands of small businesses will be up for sale. Many will not find a buyer.

A recent report from CPA Australia, Small Business Succession and Exits, estimates how many small businesses will be for sale over the next five years. The report surveyed 600 small businesses (those with fewer than 20 staff) and 105 accountants. The number of small businesses coming on to the market is expected to affect all business sales and all industries.

In about 30% of the businesses surveyed, the owners were aged over 50, which amounts to about 500,000 small businesses across Australia. The survey found that over the next five years, about 40% of small-business owners plan to close, sell or pass control of their business to others.
 

Of those who plan to leave their business, 25% want to pass it on or sell it to their children, 7% hope for a management buyout, and 45% expect to sell it to others (who are not their children). Of these, 26% say they would advertise the business for sale and 19% would consider a trade sale to someone in their industry; 23% were not sure what they would do.

In effect, about 20% of small businesses could be put on the market within the next five years. This will affect the whole market. Anyone in their 20s or 30s who wants to turn their business over quickly is competing with the rest of the market place, which includes all the baby boomer businesses that will be put up for sale.

There will be a polarization between good and bad businesses. The good will still sell but the bad will struggle to sell and many businesses will not find buyers.

Small-business clients should invest in their businesses to maximize sales potential as the report shows that half of the owners plan to use the sale as the primary source of funding for their retirement.

We have noticed that the current purchasers of businesses are very reluctant to pay for goodwill at previous levels and recent business sale have been hard to clinch. The lesson is to commence thinking about improving results, documenting procedures and being pro-active in your efforts to improve the saleability of your business now. (article from our 2004 newsletter)