Companies slash their own value - survey

By Kelly Gregor

The effect of the subdued economy has forced many companies to slash the value of their businesses as they struggle to make ends meet, an ASB survey has revealed.

The ASB Business Seller's index has dipped by 10 points to a net minus 75 per cent, meaning overall owners think now is not a good time to sell a business.

The survey showed the sluggish recovery is impacting on sale plans with many owners dropping the value of their businesses and that the economy is becoming more important in determining business value.

ASB relationship banking chief executive Stewart McRobie said the three months to the end of September had taken a toll on the perceptions of business owners.

McRobie said the drawn-out recovery, the Christchurch earthquake and collapse of South Canterbury Finance, as well as GST increases, could be fuelling perceptions "that we're not out of the woods yet".

"Plans to put businesses on the market have also been put back on the shelf. Only 14 per cent of businesses are looking to sell in the shorter term of two years or less, down from 18 per cent last quarter. About 78 per cent of respondents are looking to potentially sell in three years or more, compared to 69 per cent [last quarter].

"There has been a sharp spike in the number of owners who think their business is worth less than $250,000 from 26 per cent up to 35 per cent. In total 58 per cent of owners believe their business is worth $500,000 or less, compared to 53 per cent last quarter and 60 per cent a year ago."

McRobie said the survey was reflective of the economic environment and that although New Zealand was out of the recession, for many businesses it's still a downturn.

"Businesses are still operating in a challenging environment, especially depending on the sector you are in. Dairy payments have remained fairly strong but prices and the ability to sell a farm is a bit of a challenge, and retail sales have been pretty slow to increase." Despite this McRobie said New Zealand and the global economy were on the path to recovery but it was going to take a while.

"All the indications from offshore show we're not going to have a double dip. But it will be a bit slow. It will be beyond next year before we seen any improvement in results."

The survey showed that 90 per cent of owners believe the most important factor in determining business value was a customer case, second was profit at 87 per cent, third was staff at 80 per cent and fourth was turnover, future potential and innovation at 78 per cent.

McRobie said the three weeks to Christmas and weeks following would be very important for the retail sector.

He said for many retail businesses the two-three months over the Christmas period counted for a significant amount of their annual sales revenue.

"Basically if you're not going to do well now, you're not going to do well next year. It will be very telling and I think everyone will be watching for what the findings are. I'd like to think in the next two to three years there is going to be a lot more optimism around. The recovery should be more cemented," McRobie said.

A total of 421 respondents from a range of SMEs with an annual turnover of $150 million took part in the survey.

The survey excluded farms, non-profit organisations and Government organisations.

This story has been changed from an earlier version where Stewart McRobie was incorrectly referred to as Steve.

- NZ Herald

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