New business listings to market have dropped 20 per cent in the last 12 months after "falling off a cliff" in April and May last year. While listings have remained relatively low, sales have increased, largely driven by expats returning to New Zealand and people who have lost their jobs buying into businesses to replicate lost income.
ABC Business Sales' Market Intelligence report shows that the average sales price for SMEs in New Zealand is approximately $700,000. For a hospitality business, the average sale price is $177,000.
Like house prices, New Zealand business prices have increased following the onset of the pandemic, up about 8 per cent over the past 12 months - and expected to increase.
Chris Small, managing director of ABC Business Sales, says the Auckland-based business has experienced a 25 per cent increase in business sales in the last six months.
It sold 380 businesses in the year to March and claims to hold a 30-40 per cent share in the $0-$5 million business sales market.
Small believes investing in the sharemarket or property offers relatively small returns compared to the gains to be had from private business ownership.
According to data compiled by ABC Business Sales, comparing findings in a Forsyth Barr report for 12 months to March, the NZX50's average pre-tax yield is 4.2 per cent on cash invested whereas the average pre-tax yield for New Zealand SMEs equated to a 29 per cent return on cash invested.
That excludes any capital gains, and the pre-tax profit for business ownership is based on the business being fully managed with limited input from the investor.
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"There's potentially a seven times greater return on offer from investing in a business compared to investing in the NZX50," Small told the Herald.
While investing in a business does have a higher risk profile than sharemarket investments, Small said he did not believe the risk factor was "anywhere close" to seven times greater than investing in listed companies.
He said business ownership was an "underrated investment", and with the ballooning state of the property market moving further out of reach for Kiwis, it should be considered an alternative.
Property was also a non-productive asset that did not create jobs, he said.
"If you own a business you would want to keep a close eye on it to make sure it is performing - it will never be as passive as owning shares, but the rewards are seven times better on average."
ABC Business Sales said buying a business in New Zealand was 20-30 per cent cheaper than buying across the Tasman in Australia.