The 2013 MGI Australian Family and Private Business Survey is a disturbing document describing a sector that’s aging, pessimistic and struggling with change. It bodes poorly for what should be the powerhouse of the nation’s economy.
Having been conducted over nineteen years, the MGI survey is a very good snapshot of how the sector has evolved over the last two decades and it’s notable how owners are older and not optimistic about their prospects of selling their businesses.
Another key aspect is the changed focus of Australian family businesses; in 2003 forty percent were in manufacturing, this year its half that which probably tracks the decline of the nation’s manufacturing industries.
Most striking though is the aging of the small business community with one in three proprietors being in the 60 to 69 year old bracket, up from one in five just 3 years ago.
That the average age of Australian small business owners is increasing shouldn’t be surprising given the nation’s increasing obsession with property. As home prices become more expensive, it becomes more difficult for younger people to pay off their mortgages or risk their equity on building a business.
Probably the most heart breaking comment from the report is that over half of Australia’s small business owners don’t see an immediate prospect of retiring and nearly two thirds don’t see any chance of an early exit.
58% of family business owner-managers see themselves working in the business beyond 65 years of age, with 65% indicating that their businesses are NOT exit or succession ready.
Part of the reason most Australian family businesses aren’t succession ready is that Generation X and Y buyers crippled by big mortgages simply can’t afford to pay what the older Baby Boomer and Lucky Generation proprietors need to retire upon.
It’s hard not to think that the grand 1980s corporatist vision of Bob Hawke and Paul Keating – that most Australians will work for one of two big corporations while being members of one of two big trade unions – has largely come true.
For Australia though this is not a good thing as the wealth of those corporations, along with that of the nation’s households, is largely tied into the domestic property market.
A discussion on the Macrobusiness website about New Zealand’s property obsession has a graph which illustrates both the Kiwi and Australian economies’ dependence upon house prices.
Those financial assets in the second graph include the value of businesses, and that statistic staying largely flat while housing wealth has gone up fifty percent over the last fifteen years illustrates how dependent the Aussie economy has become upon property speculation.
Property speculation can be fun, particularly when you’re watching people bash down walls on the latest reality TV home improvement show, but it isn’t the basis for a strong economy.
That Australia’s small business sector is aging and increasingly shifting to low value adding service industries is something that should be discussed more as the nation considers what its global role will be in the 21st Century.
I think you might be forgetting the older business owners who have children working in the business who are virtually unemployable anywhere else. Many of these family businesses have done very nicely from their business over the years especially if they have been good at investing along the way and buying property so they are not being gouged by a landlord. For business owners over 65 who have worked hard for 40 years sometimes retirement doesn’t look so great. They are used to working and may not know what to do with themselves if they retire. In those cases many prefer to take good holidays every year for an extended time and keep their hand in the business.
The whole idea of retirement may be as out of date as the ‘job for life’.
We are certainly in a period of flux but I think it is worth guarding against the same inflexible thinking that has kept some retailers from acknowledging the changes in the marketplace, by just assuming the same old reasons why things are, as might have been a reasonable expectation, just a few years ago.
That may be correct Lindy if the intention of those small business owners is to work until they drop, but I doubt it is given most of the early boomer generation sees a long and prosperous retirement as one of their objectives in life.
If we’re talking late boomers and Gen-Xers then I think you’re right, most people I know aged 50 and younger expect they will never retire, but the stats we’re looking at quite clearly show we’re talking about the older generation.
As far as property investments by those businesses go, you are absolutely correct but this again raises another exit problem – the property the business sits on is worth far more than the business itself. It makes more sense to shut the business down and sell the property as the operation’s cash flow won’t support the the cost of buying the premises at current property prices.
While I totally agree with you that the ‘job for life’ attitude is out of date along with the concept of retiring at 65, something that came about when most working blokes were dead by 63, what we’re seeing in the Aussie small business sector is something very different.
Unfortunately Paul this process is accelerating.
Lindy
With ready made simplistic comments like that you must be part of academia, the Banks or government. I’m sorry but, by your trite response, you are showing a clear lack of appreciation of the realities of small businesses and the causes of their difficulties.
The policies of Keating/Hawke as outlined by Paul are well advanced, well entrenched and pursued by both sides of politics. The details are too lengthy to start on here but every facet of Australian policy, finance.and industrial relations is now quite deliberately directed towards the destruction of small business.
But no worries! We can keep running up debt to fund the current economic structures at our current rate forever….Herb Stein was not correct!!!!!