SME owners forced to look at broader succession options as cashed up buyers dwindle after global financial crisis, says ANZ

By Gareth Vaughan

A silver lining in the increased difficulty ageing small and medium-sized business owners are facing in exiting is that there's more knowledge being retained in businesses and owners are now thinking more of their managers and family as succession options given a dearth of cashed up buyers, says ANZ's Graham Turley.

Turley, ANZ's commercial and agricultural managing director, told interest.co.nz after the release of the bank's fifth annual Privately-Owned Business Barometer that selling a business today is more fraught than it was four years ago and many business owners are thinking more about succession plans now.

Turley noted when the Barometer was first launched it was largely focused on business succession issues as Baby Boomer owners eyed exits before the Global Financial Crisis (GFC) during a time of inflated asset prices. As recently as the 2009 Barometer, ANZ noted 62% of business owners were over 50 and 23% over 60. A total of 45% wanted to retire in the  five years from 2009 with only 11% having formal succession plans. The 2009 report noted as many as 10,000 businesses could change hands within five years if owners' objectives were achieved.

"Pre GFC prices were high, everyone was getting good value and selling was an easy option," Turley said.

Big drop in those looking for a clean sale

This year's barometer shows just 7% of business owners who responded to the survey are looking at a clean exit, down from 27% in 2008.

"Now days I think there's a bit of realism about the values of their businesses," said Turley. "There's a stronger desire to get profitability back and build up the value of these businesses."

Furthermore some business owners who may have thought they wanted to retire at, say 55, got to that age and decided that actually they didn't want to quit. At 40% (up from 37% last year) finding a suitable acquirer was seen as the key barrier to succession by the most survey respondents.

"Now days if you want to sell a business it's not so easy. So the reality is some of these people are saying 'I need to stay and think a bit more about different ways of succession, bring my management and family along with me'," Turley added.

The percentage of business owners concerned about finding a suitable successor dropped to 32% this year from 54% last year. Turley suggested this was a silver lining in tough economic times because better succession plans will see more continuity and knowledge remain in companies.

"There could be some good come out of this that we see a much more controlled and managed change of ownership going forward. Maybe people are now thinking more widely about the people around them."

That said, he noted that the issue of ageing company ownership hadn't gone away, but in many cases owners need to think of other mechanisms, aside from a clean sale, of how to hand over control.

"A drop from 27% to 7% in people (looking at) selling their businesses is not necessarily a bad thing because it means we don't lose all that knowledge," said Turley. "That knowledge is kept in the business and maybe that gets passed on."

'Tired' business owners

Meanwhile, in response to what the issue of most concern to their business is, there was a 12 percentage point rise, year-on-year, to 22% in balancing family and business interests, and an 8  percentage point rise to 18% in debtor risks. Domestic competition and market pressure remained the issue of concern to the most respondents, but slipped 2 percentage points to 40%.

Turley suggested that when the GFC kicked in, business owners had to put more time into their company leaving them with less leisure time.

"They've been doing it relentlessly for two or three years now and some of them are saying 'hey look, I need to get perspective, a bit more work-life balance because I've been working hard. Maybe I just want to have a bit more time out of the business and enjoy life a wee bit.' It does say there's a bit of tiredness in there," said Turley.

As for growing concerns about debtors, he suggested this was a reflection both on tough economic times with business owners aware some of their trading partners were finding the going tough, and a greater focus on cashflow management and risk management given tight economic conditions.

"And the good thing is people are focusing on it, they're focusing on the quality of their debtors and focusing on when their cashflows are coming in," said Turley.

"That's a good thing because cashflow management is important. risk management is pretty important too."

Now in its fifth year, the ANZ Privately-Owned Business Barometer was circulated to 3,161 private businesses with annual turnover of between NZ$2 million and NZ$150 million. The bank received 948 responses, equivalent to 30% of invited participants. Total responses were underweight in Canterbury compared with previous years following the February 22 earthquake.

This article is exclusive to the Banking and Finance Daily Newsletter this morning.