The BizExchange Index for the March 2008 quarter revealed a continuing decline in business values and increasing uncertainty about the future direction of values in Australia, particularly for smaller businesses.
The index, which monitors the value of private businesses in Australia, showed that the number of smaller businesses listed for sale has increased markedly. The market is developing a definite pattern of increasing the number of listing and of prices falling.
Businesses advertised for sale for less than a year's earnings continues to grow, while the number of businesses for sale in the middle market ($5 million plus) has declined in recent months.
Valuation of small businesses varies widely by industry and also in the range of values. The overall market trend of declining values continues with reductions in values across all industries and business sizes.
The value of businesses is aligned with turnover across all industry sectors, although the relative value of businesses with a turnover of $500,000 to $1 million has declined.
Recent credit tightening is also likely to increase the number of stressed sales, which will add to the pressure of demographic change on values. Credit tightening will restrict the capability of potential buyers, particularly first time business buyers from Gen X and Gen Y.
Chairman of BizExchange, David Bird, said, 'Downward pressure on private business values is expected to increase in the coming months as recent credit tightening impacts on the revenues of many small businesses. A high proportion of these are involved in retailing and hospitality where discretionary spending is an important element.
'The more restricted access to funding in the current market will also have a downward impact.
'As always, uncertainty as to the future is a negative factor for business values. Recent financial market failures in Australia and the US have materially raised the level of uncertainty,' he said.
BizExchange has been monitoring Australian private business values since March 2006, and publishing the BizExchange Index since September 2006.
The second public practice survey will be conducted by BizExchange, in cooperation with CPA Australia, during June 2008.
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