Business sales plunge in 2010, with outlook for 2011 cloudy

Business brokers are mixed as to whether SME business sales will recover in 2011, with dampened consumer confidence, the high Australian dollar and cautious lenders seen to be holding back demand.

With members noting at an Australian Institute of Business Brokers conference that there had been a 70% fall in sales last year, Queensland-based business broker LINK has reported a solid start to 2011, albeit from a low base.

LINK managing director David Fitzgerald says the market has been helped by South African interest in Melbourne, and interest in franchises in Sydney.

Fitzgerald says South East Queensland, by contrast, has been hurt by recent natural disasters and a dearth of buyers from New Zealand, who traditionally accounted for 15% of sales but now would fall in at under 1% as currency movements reduce the attractiveness of Australian businesses.

Fitzgerald says he’s finding that business migration has “slowed in Queensland, a little bit in Sydney but seems to be picking up in Melbourne.”

This, in turn, has increased demand for SMEs, particularly coffee shops, newsagents and franchisees.

Even the unpopular manufacturing sector has been getting interest in Melbourne, Fitzgerald says, although any company that is not making money would unsurprisingly find it tough to sell.

And it’s not just the record Aussie dollar that’s holding retail companies down – Fitzgerald says high rents and fears on security of tenure and refurbishment requirements are also weighing on sentiment for retail.

“It’s very much a buyers’ market, and the people who have the money realise that.”

He says the average sale price for a business in Melbourne is between $400,000 and $600,000.

“The banks are still making it very difficult for people to borrow money to buy businesses.”

“It’s almost as if the banks don’t recognise goodwill.”

Hurst Partners, a Victorian business broker, is not so upbeat on current conditions and outlook.

Principal Rob Hurst says the market is “very twitchy” and concurs the banks aren’t assisting with their failure to provide funding.

After a small pickup as the Government’s package washed through the market, Hurst says there’s been weakness for the past 12 months or so and the market was unlikely to lift until consumer confidence turns the corner.

“People’s confidence has been knocked about by news overseas and local disasters,” Hurst says.

“They’re skirting around it, but they seem to be nervous.”

His clients, including those in the service industry, are often looking to retire, escape from burn-out or pursue a change of direction, he says.