Top 20 Destroyers of Business Value: # 8 Increased Competition and Supply of Businesses on the Market

Posted on September 11, 2012 · Posted in Blog

As certified valuation analysts, we must consider all Macro Economic factors that can potentially impact the subject company’s valuation when conducting an accredited business valuation.  One macro factor that has impacted every segment they have been a part of is the Baby Boomer generation.  Like it or not, these aging forty, fifty and now sixty somethings may have a serious impact on the valuation of privately held businesses.

According to Biz Quest of the largest websites for business resales, we are now in the initial stages of what is expected to be the greatest wave of business transition in U.S. history. At 83 million strong, baby boomers represent the largest single sustained growth of population in U.S. history — and this generation started and grew hundreds of thousands of successful privately held businesses.

The vastly increased supply of small and medium-sized businesses available can potentially lead to a glut of companies for sale. This would eventually drive down valuations and give new leverage to buyers.  This can compound the problem for business owners.  There is evidence that the supply-demand implications of millions of businesses coming onto the market are not being factored into the exit planning of owners.

A survey by PricewaterhouseCoopers finds that one out of every two company owners plan to sell their business within the next 10 years and people 55 or older own 30 percent of all businesses with employees.  The simple fact is that an increased supply will increase competition and drive down overall valuations.

Historically, most business owners exit their business with less than six months of advanced planning.  Like any other environment with increased competition, standing out from the crowd is crucial.   Business owners must understand that there will be more options and choices available in the market.

Any potential issues, problems or risks will have a greater impact on valuation.  Just like a homeowner must make sure his house stands out against other listings, business owners must take the time to get their house in order before placing it on the market as well.

Are you destroying value by not understanding the impact of increased competition?

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