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Few SME owners have accurate estimation of their business’ value
EVEN though most small to medium-sized enterprise (SME) owners are relying on the sale of their business to help fund retirement, few are able to accurately estimate the value of their business.
It is a cause for concern identified in research group RSM Bird Cameron’s recent thinkBIG 2014 study. 
According to RSM Bird Cameron’s national head of business solutions, Andrew Graham, the ageing population, as well as the economic uncertainty impacting small business over the past few years, has seen more SME owners consider their financial security heading into retirement.
But the thinkBIG 2014 study showed only 35 percent of SME owners have completed a formal valuation of their business, even though 67 percent of respondents believe the value of their business has increased over the past 12 months.
“While some owners might have a rough idea of what their business is worth, often this figure can be far from accurate,” Mr Graham said.
“It is important to maintain a solid knowledge of the business’s value, especially when relying on the proceeds from the sale of the business as the primary source of retirement funds.”
Tax concessions also remain unknown to many SME owners with 61 percent in the study saying they were not aware of the tax concessions available upon sale, up from 54 percent in 2013.
“These concessions ultimately reduce the overall taxation liability that arises as a result of the sale of the business,” Mr Graham said.
“Not only is it important to consider these concessions, but also the structuring of the sale transaction, which can have a fundamental impact on both the price a potential acquirer is willing to pay and the ability to extract the maximum after-tax sale consideration for the owner.”
The study found 42 percent of SME owners have a plan to exit the business and 52 percent of those with a plan to exit anticipate they will exit their business within the next four years. Further, 36 percent expect the proceeds from the sale of the business to be their primary source of retirement funds.
“Reliance on the sale of the business to fund retirement reflects the generally poor investment returns over the past few years as well as the need to sell external assets to help fund the business while things have been tough,” Mr Graham said.
RSM Bird Cameron’s thinkBIG studies have measured the pulse of the Australian SME sector for nine years. The research benchmarks business growth and profitability, business planning, exit planning, and superannuation and 504 business owners participated in the 2014 study.
RSM Bird Cameron, a core member firm of RSM International, is the largest mid-tier accounting firm in Australia with national ownership and profit sharing and offers a full range of specialist business advisory services. RSM Bird Cameron is an Industry Expert member of Victorian Leaders, the organisation helping to develop and mentor the next generation of leading businesses based in Victoria.
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