KEY POINTS:
A shift in the ownership of the small- and medium-sized enterprise sector - as the baby boomer generation retires - offers opportunities for young entrepreneurs, as well as payouts for owners, and business for banks and brokers.
"We do have a progressively retiring population who have quite a
lot of wealth tied up in the assets and the goodwill of their businesses," says Tabak Business Sales partner Jack Carroll.
Tabak has been operating nationally for four years and acts for buyers and sellers of privately owned businesses worth between $400,000 and $20 million. "Already, we're seeing a lot more activity in the market in terms of businesses looking to sell."
Apart from demographic trends, Carroll points to a growing realisation that selling one's business is a "legitimate strategy".
" Ten years ago, when people retired from their business, a lot of them may have shut their doors. They weren't that well informed that they could sell their business, and that there was value in the goodwill side of things."
The market has also been serviced by companies like Tabak, which Carroll says is important, because it isn't too easy to sell a business.
New Zealand's business sales success is only about 20 per cent, sometimes because of some owners' overinflated views of their business' value and sometimes its questionable quality or readiness for sale.
"There is work that needs to be done. Often that means transferring as much personal goodwill into the business as possible." The quality systems and processes are also vital.
Tabak has a success rate of about 90 per cent, and it turns away about 70 per cent of the businesses that approach it.
Potential buyers, who Carroll says are generally 30-plus, driven by economics and lifestyle and want to be "masters of their own destiny", get to look at good-quality opportunities as a result.
He points out there are always risks associated with getting into any kind of business, but buying a sound, existing enterprise is less risky than starting from scratch.
"You've got the momentum from a cash flow and return point of view, you've got all the suppliers and customers in place and you have the benefit of the right decisions having been made along the way. There are also financial reasons that make buying an existing business a good idea.
Carroll says banks' recognition of the value in the small- and medium-sized enterprise sector has increased and their perception of risk and security has changed. "They now view the business cash flow as security and have a greater willingness to fund deals like this."
BOOMING TIMES
* Business brokerage Tabak says the average small- to medium-sized business owner in New Zealand is aged over 50.
* It estimates as many as 40 per cent of them, owning around 300,000 businesses, will want to sell within the next five to 10 years.
* That backs up research by ANZ National Bank, which found that 66 per cent of medium-sized business owners are over 50, and one third are over 60.
* The bank's research also found that few owners intending to retire within five years had formal plans for how they were going to get out of their businesses.