After a rough ride through the global financial crisis, the market for buying and selling businesses is enjoying a period of smoother sailing.
That's according to Aaron Toresen, managing director of business brokerage firm Link, who says strong local demand for businesses is also being helped along by significant immigration.
"Immigrants make up quite a large percentage of our buyers ... Probably about 40 per cent," says Toresen, "primarily from mainland China and India, so it's a pretty significant part of the market now."
Figures from Link, which says it's responsible for about 20 per cent of New Zealand's business sales, show for the two months to September the value of total transactions within the group increased 8.2 per cent on the previous period.
For that same period, the average sale price in the group for SME businesses sold in New Zealand increased by 8.9 per cent - rising from $386,827 to $433,876.
This week in Your Business I've interviewed a handful of the people behind such numbers, who share some of their experiences of buying a business, and tips for others who are in the market.
David Fiu and his wife Dale bought the Bean There Cafe in Onehunga early this year, after selling their previous business - a cafe in the Columbus franchise.
Fiu says the couple looked at more than 30 different cafes during their search and made three written offers on other cafes before successfully buying their current business. But the process was easier, he says, having done it before; having a clear list of search criteria and support from trusted professional advisors also helped.
"I'd say obtaining reliable financials would have been the biggest challenge of the process," Fiu says, "because people often like to paint them as better than they actually are. You've just got to keep pestering until you get the real information you need."
Myles Cooper is a founder of investment firm Challenge Partners, which has purchased five industrial businesses in the past 24 months.
For Cooper, the biggest challenge when buying a business is a lack of time.
"You go into the process and even if you have 90 days, that time evaporates very quickly because of all the things you have to check," he says. "Obviously there are different complexities in different-sized businesses, but it can be a short time to do all of your due diligence."
This is where it pays to do your homework, he says, so when you're given information during due diligence you have an understanding of how that fits into the process. And like Fiu, he emphasises the importance of checking everything you're told.
Cooper's key piece of advice is to look for businesses that have proven systems.
"The danger when you buy a business is the culture of the business will change when the current owner leaves; if you're going to buy a smaller business, the owner operator of that business will have their own culture and if they leave you won't be able to replicate that," he says. "So unless the business is well systemised you won't be able to achieve the same results, because all of that knowledge is in their head."
Jason Rutherford is owner/operator of Subway in the Smales Farm business precinct on Auckland's North Shore, and says having a proven, global system was one of the factors that led him and his wife to buy the business.
The Rutherfords spent around four years looking for a business before settling on their current operation. They researched a number of different franchise options, and Rutherford also drew on advice and support from friends who already owned Subway stores, where he spent some time working.
"I think it really helped that I was prepared to put in the time and effort to see how it worked," he says. "We used every connection and resource we had at our disposal to try and make this an easy journey."
Aaron Toresen, Link
Aaron Toresen is managing director of business brokerage firm Link.
Are a lot of businesses being bought and sold at the moment?
Yes, it's incredibly buoyant. Obviously with the GFC, business broking and the sales of businesses slowed down immensely. It was probably one of the worst hit industries because the businesses themselves weren't making a lot of money, so they weren't particularly saleable, or they had reduced considerably in value. Then on the other side of the coin, buyers weren't able to raise finance, so it was absolutely a perfect storm.
As we came out of it, though, there was an almost a pent-up demand. So those unsatisfied buyers have really come back to the market in a big way. Similarly the sellers who have managed to build their profit back up again and are doing better financially are finding now is a really good time for them to sell. There's that perfect combination of lots of sellers and lots of buyers.
When did you start to see a turning point in terms of recovery?
It took a long time to recover. It was 2012, I guess, when things started to improve, and it's just grown from there. I don't think there's much sign of that stopping either because on top of strong local demand we've got pretty significant immigration, and immigrants make up quite a large percentage of our buyers.
What sort of percentage?
Probably about 40 per cent, primarily from mainland China and India, so it's a pretty significant part of the market now. Typically immigrants are buying smaller businesses that meet the criteria as far as Immigration is concerned, or they're buying a second business once they've been here for a little while already. There's a lot of activity in that market.
In general, what sectors are particularly popular at the moment among business buyers?
Education and particularly childcare centres are really in demand. Also, any business around niche manufacturing - particularly those making products that are difficult for the mainland Chinese manufacturers to compete with - are really popular. Then there's import and distribution, because as a country we import so much; and value-added food products is another area that's popular.
How about some sectors that aren't so in demand?
There are a few you can probably guess. Video shops aren't that popular anymore, and we've noticed a pretty steady decline in demand for DVD and video stores. That's a situation that's probably only going to get worse with the advent of new television options, so it's going to be tough for those guys. Things like ladies' fashion can also be really difficult because it's just so seasonal and unless you really understand the trends it can be a tough business.
Print is another sector where there's a little bit of challenge, depending on the size and scale of an operation, because obviously a lot of printing can now be done inhouse and there's a movement to so much communication now being done online.
How about franchised businesses? What is the demand like in that sector?
Franchising is going really strongly and I think that's for a number of reasons. Firstly, for people who haven't had lots of experience in business there's quite a bit of comfort in having a proven system that works well. Secondly, banks tend to look quite favourably on franchise businesses, because they tend to be more reliable and stable. Obviously with a franchise you're going to lose some control and some of the flexibility and independence you'd otherwise have, though, so there has to be a bit of a compromise.
Coming up in Your Business: How do you figure out what to pay yourself as the owner of a business? What are some of the different formula or guidelines people use and why? If you've got a story to share, drop me a note: firstname.lastname@example.org