Baby-boomer firms face headache when time comes to sell

Photo / David White

A business adviser is warning baby-boomer business owners to take steps now if they want to sell their firms in an increasingly crowded marketplace.

Grant Thornton's latest global business survey has found New Zealand leads the world in the proportion of private businesses that are expected to be sold in the next 10 years.

While business brokers were reported in May as saying there was a shortage of buying opportunities, the survey found that in the next decade 69 per cent of private businesses here will be sold by their ageing owners, well ahead of second-placed Australia on 45 per cent and almost three times the global average of 25 per cent.

In the United States 29 per cent of businesses are likely to change hands in the next 10 years and in Britain that figure is 27 per cent.

Paul Kane, a business advisory partner at Grant Thornton, said that as New Zealand splutters its way out of recession, it will be a hard sell for many here.

"First, you will be competing in a crowded market with plenty of opportunities for would-be investors. Secondly, the credit crunch has tightened the flow of money making the procurement of a business much more difficult." Prospective buyers were also gun-shy and venture capital had all but dried up.

Baby boomers - born between 1946 and 1964 - would in some cases be looking to transfer the business to family members and "that will create all sorts of issues for them".

Preparing to sell could be a process that took three to five years. Kane said privately owned businesses concentrated on enhancing cashflow, reducing costs and managing day-to-day operations.

On some level, this focus on short-term survival made sense as orders had fallen and demand reduced.

To maximise the selling price to a third party the business owner needed to present a compelling vision of what the business could become rather than a historical perspective.

"A compelling story and competition among bidders will more likely achieve a selling price above any scientific value," he said. But selling to a family member could be a matter of what they could afford.

"In a recovering economy, succession planning is rarely top of the mind for business owners."

Finding a partner an option

Peter Johnson has found succession planning is not just about selling - it can be about preparing your business to let others buy in.

Johnson owns start-up dive technology firm Monitoring Technology and is looking for a partner to take a stake in the Auckland business.

"We're expanding the company and going to market but being small you don't have a lot of succession planning."

He had to go through similar processes as he would if he wanted to sell.

His equipment allows crew on the surface to track divers and monitor their equipment and vital signs. It is patented in this country and is aimed at military use overseas.

"We want to grow it and to raise capital - we don't want to give it all away. It's not only the money, it's also the skill sets that go along with it."

The entire process would take more than a year, he said.

Getting ready

Ways to clean up the balance sheet:

* Ensure the right management is in place.

* Trim expenses.

* Strengthen internal processes.

* Introduce new products.

* Expand to new markets.