Recent data shows more small businesses are likely to hit the market this year thanks largely to retirees. Photo / 123RF
Recent data shows more small businesses are likely to hit the market this year thanks largely to retirees. Photo / 123RF
Boomers ready to retire and sell up will help drive small business sales, according to recent SME data.
ABC Business Sales’ latest market intelligence report showed a 28 per cent rise in the sale price for SMEs outside of hospitality and worth up to $5 million.
Managing director Chris Small said business prices have continued to increase “at a strong rate” across the country as bigger businesses are being sold.
“More big businesses are coming to the market for sale. Baby boomers are retiring and selling businesses so there are more expensive, better quality businesses coming to market,” Small said.
ABC’s report said this is significant because baby boomers “currently own the majority of NZ’s privately owned businesses”.
He said there has been a “substantial increase” in the number of businesses worth $2m and over joining the market over the last three years, driving average business sales prices higher.
“It’s a good time to think about getting into the world of privately owned business,” Small said.
He said that while “lots of baby boomers are retiring, a number of people are looking to sell their businesses and a lot of people have money”, it looks like it will be an average and balanced year for SME sales.
ABC’s report showed that 89 per cent of all businesses in New Zealand are valued up to $5m.
Small said despite the economic downturn predicted this year and ongoing strain on businesses due to the effects of Cyclone Gabrielle, buyers from around Aotearoa, overseas and expats are ready to secure a business.
Buyers are “largely New Zealanders because they want to get into industry or leave their existing role,” Small said.
He said, “More expensive businesses are being sold than five years ago. Like the housing market, asset prices are growing.”
ABC Small Business Sales managing director Chris Small. Photo / Supplied
ABC data showed a hike in demand to buy businesses in 2021 which outweighed supply at the time. Small said 2023 should bring more opportunities due to low unemployment, low levels of immigration to New Zealand and increasing interest rates.
He said “record demand” in 2021 came from a range of sources.
“A lot of money was pumped into the system by the Government, interest rates were at record lows, there was pent-up demand because no one had done anything in 2020.”
For those looking to secure a small-medium business this year, Small said “people love recurring revenue models”.
This makes IT, property maintenance, imports, food distribution, and services like insurance brokerages, accountancies, health care firms, aged care, and childcare popular for buyers according to ABC data.
“The average privately owned business can have a return of anything between 25 to 50 per cent. Certainly, the returns are there,” Small said.
Hospitality has taken a huge hit over the last few years, compounded with labour and supply shortages and a new minimum wage increase.
ABC data showed the average price for hospitality businesses worth up to $5m has risen 40 per cent between June 2021 and June 2022.
“The data clearly shows a bounce back in hospitality prices … The June-22 average hospitality price of $284,050 is more reflective of a normal market and we believe these prices will be sustained going forward,” ABC’s report said.
The report said although the average price for hospitality businesses valued under $5m saw a 9 per cent drop in the year leading up to December 2022, buyers prefer to spend more on existing and successful hospitality businesses “to reduce their risk in what have been uncertain and unprecedented times for the industry”.
Small expects hospitality to be a “game of two halves”.
He said, “I believe it’s going to be a good year to manage good service. For people who can do that, it will be very busy. There’s a good appetite for people who want to eat.”
He said the hospitality game will have big winners and losers this year, as “winners will win big and get customers” while “those who can’t get staff will struggle”.
“There are some great opportunities coming to market this year. I think like anyone, if you’re offering good propositions, there are plenty of opportunities to make money for business owners.”
ABC Business Sales is a private company that specialises in business sales. The data set used in their market report are all transactions completed by the ABC Group, which has 40 to 45 per cent market share of this segment.
