It’s estimated that 20 per cent of New Zealand business owners are planning to sell their businesses within the next few years, with up to 10,000 businesses possibly changing hands over the next five years.
With more than 60 per cent of owners aged 50 plus years old, and almost a quarter 60 plus years old, New Zealand may to see a major demographic – younger - shift in business ownership.But with the economic uncertainty created by COVID-19, is it a good time to sell your business, especially if you’re looking at retiring?
Those with plans in place to sell their business this year are, naturally, hesitant in this new world.
At a time when many industries are struggling — and some are unexpectedly booming — the decision to put a business on the market is more difficult.
Some, particularly baby-boomers, may have originally decided this was the year to sell to fund their retirement.Three out of four New Zealand business owners are expecting to sell their businesses in order to fund their retirements, according to recent research by Xero. The research also notes that 90 percent of baby-boomer business owners are looking to fund their retirement through the sale of their business.
“A possible positive for continuing to trade is that your competitors may be struggling with the pandemic impact. ”
But there’re a number of critical issues in this economic climate you need to consider to determine when the times right to sell.
For a start, you should perhaps revisit your motivation for trying to sell your business in the first place and consider how that timing might be impacted by the new COVID-influenced market. It could mean you sell your business at a reduced price, impacting on your retirement nest egg.
You may wish to consider delaying retirement in order to allow the business to recover value if the pandemic impact has been negative. However, a health issue may require an immediate sale, regardless of current market conditions. Personal retirement plan can be more flexible. A possible positive for continuing to trade is that your competitors may be struggling with the pandemic impact.
It could mean there are better opportunities for your business to operate for longer – and improve the ultimate sale price. You might want to revisit your existing business plan to capitalise on opportunities we are seeing in these times, like the growing popularity of digital purchase and less need for expensive office space, with employees working from home.
It’s important you revisit the financials of selling your business. Updating your financial forecast to account for the pandemic is critical.
If you are comfortable (relatively) of what the outcome of the sale could be at present, it’s important to show how your business can survive the downturn. To make your business stand out from the competition is to let prospective buyers know your business is recession- and pandemic-proof.
Not an easy task; however, there are a lot of entrepreneurs out there who think this is an opportunity to buy into a business. Many buyers are willing to purchase a business that is distressed or requires a turnaround if they think it has potential, but you need to prove that assumption and come up with a deal that works for both parties.
Are you looking at passing on your business to the next generation?
An option to selling your business to an “outsider” is to look to passing your business onto members of your family or staff. Surprisingly, this is not a preferred option for many New Zealand small business owners. According to Xero research, only 30 per cent of business owners believe their family are capable of taking over their businesses.
Xero’s research found that 55% of small business owners expect that someone outside their family will take over their business. However, it’s still seen by many commentators as a good solution to retain the business “brand” and re-inforce continuity to customers.
It can to be a daunting process, with your decisions not only affecting you, but also your family, other shareholders, your staff and, of course, customers. Employing a business adviser will help you make decisions about how to transfer the business to the next generation. An adviser can help you decide if you still want to remain working in the business, just keep shares in the business, or exit entirely.
A popular succession strategy is to gradually pass ownership to a member or members of your family or senior staff. This approach can help preserve the value of your knowledge and experience; customer relationships, and give you the chance to stay involved in the business. Attractively for potential retirees, you can gradually reduce the number of hours you work.
Is it time to go?
It’s becoming almost a cliché to say we live in uncertain times but we are and the impact on small businesses telling. Owners who were planning to sell their businesses this year -- or the next year, for that matter -need to review if the timing will impact on their plans. Reviewing your financials and business operations and outlook, as well as revisiting your proposed exit plans, are even more crucial now.
This article provides information rather than financial product or other advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product.
Information is current as at the date the article is written as specified within it but is subject to change. Steadfast Group Ltd and Steadfast Network Brokers make no representation as to the accuracy or completeness of the information. Various third parties have contributed to the production of this content. All information is subject to copyright and may not be reproduced without the prior written consent of Steadfast Group Limited.