Research shows that owners of most Australian small to medium enterprises (SMEs) and family businesses perceive the “fair value” of their businesses to be much greater than the true market value. Key reasons are:
- Few owners make their business sale-ready by taking the time or trouble to invest in resources, or undertake “necessary housekeeping”. As a result, significant gaps exist in the planning (strategy), financial, human resources and operational areas of the business. These gaps serve to discourage purchasers from paying full value, especially if they are looking to buy the business as a going concern.
- More than a third of SME owners are aged over 50. As the baby boomers retire over the next 10 years or so there will be an imbalance in demand and supply for SMEs. Only 15% of the population are currently in the 35 – 45 age category.
These factors suggest that only profitable and well run businesses will attract premium value.