The Australian Business Broking Industry

What is the Australian Business Broking Industry?

The Australian Business Broking industry comprises firms and companies that act as an intermediary between buyers and sellers of small, privately-owned businesses in the country. Business brokers handle the sale process from the beginning till the very end. They estimate the value of the business, advertise the sale without disclosing details such as the name of the business and its owner, handle negotiations and facilitate various other aspects of the sale including due diligence, and in general ensure that the deal concludes smoothly and correctly.


In spite of the sluggishness induced in the industry by the tightening of bank lending following the global financial crisis and, more recently during the commotion in Europe, the Australian Business Broking industry is fast recovering and increasing its growth pace.


The government’s strong fiscal discipline is playing a significant role in the industry’s recovery. The return of the budget to surplus is giving the Reserve Bank room for further reducing rates and taking the cash rate down, which in turn is having a positive effect on small business sales transactions and thus the Business Broking industry.


Government reforms are also playing an active part in the industry’s recovery and growth. Quite often people have to put their family home up as collateral to obtain the finance to buy a small business. Recent government reforms to the Personal Property Securities system by the government have made it easier for individuals buying small and medium-size businesses to use more of their property to secure lending and easily manage their credit risk. The previous limitations on the use of personal property as security have been removed in the new national system.


The combination of the multiple registers for different types of property for the Commonwealth and each State and Territory into the Personal Property Securities Register has greatly helped in cutting red tape and freeing up cash flow for the purchase of small businesses. All these government reforms and initiatives are positively affecting the Australian Business Broking industry and greatly contributing to its recovery and growth.


Current Composition and State of the Industry

The majority of firms and companies in the Australian Business Broking industry are small in size and are mostly non-employing establishments. The industry has its fair share of big firms and companies, but the big business broking firms and companies don’t account for a very large market share. The small business broking firms and companies usually handle business sales transactions of less than A$100,000 in value as well as those between A$100,000 and A$1 million in value. Business sales transactions of more than $1 million in value are usually handled by medium-size and large business broking firms and companies.


Sales Commissions and Gross Annual Incomes of Business Brokers

Credible surveys show that sales commissions of business brokers in Australia average 8% - 12% of gross selling prices and the minimum commissions of business brokers average A$12,000 - A$15,000. More than 60% of business brokers in the country report annual gross commission income in excess of A$100,000. The gross commission income of business brokers in Australia for the accounting year 2011-2012 averaged A$200,000 – A$250,000 earned on an average of seven sales. Additional income from business valuations and other advisory fees for the same accounting year averaged A$50,000 - A$60,000.


Employment and Wages in the Industry

The Australian Business Broking industry employs several thousand individuals. The process of buying or selling a business is becoming increasingly specialized, data-oriented and analytical. As a result, the Australian Business Broking industry is seeing a rise in the number of certified business brokers and valuers entering the industry. Furthermore, as the number of professionals with both specialist knowledge and the right experience in the industry is increasing, the number of firms offering services outside the traditional scope of business brokers is on the rise.


There is no apparent shortage of certified professionals in the market. As a result, wage pressure is low and is expected to remain so. Hiring in the Australian Business broking industry is expected to grow 2% and overall industry wages are expected to grow at a relatively higher rate of 3.2%.


Expected Growth in the Industry

There are currently three million small businesses in Australia, employing more than five million people and contributing around 34% to private sector industry value add. The number of small businesses in the country is on the rise, and so is the number of business sellers and buyers employing the services of professional intermediaries. An increase in the number of small businesses coming on the market for sale and a rise in the number of business buyers and sellers using the services of a professional intermediary will naturally lead to growth in the revenue of the business broking industry. The government will be injecting around A$20 billion into the wholesale finance market, which will help make credit more available, and provide support for new and existing fledgling businesses through capital for investment and tax concessions. From the accounting year 2014-15, the government will also start reducing the Interest Withholding Tax in order to increase competition in the lending market. All these factors will have a very positive effect on the industry’s overall revenue in the next few years.


Areas with Greatest Growth Potentials

The areas with the most potential for growth are sales transactions of businesses between A$100,000 and A$1 million in value and sales transactions of businesses between A1 million and A$5 million in value. Other areas with great growth potential include business valuation services and premium advisory services, especially in the case of medium-size and large business broking firms and companies.


Opportunities for New Entrants in the Industry

The Australian Business Broking industry offers great prospects for new business broking businesses. The industry doesn’t present any significant barriers to entry and the overall concentration in the industry is not very high. Although the existing well-established business broking firms and companies will present substantial competition for new entrants, the industry is ideal for and offers great prospects for new entrants who intend to specialize in brokering businesses operating in a specific sector. The start-up costs are not very high as the industry is labour intensive instead of capital intensive. Moreover, neither certification nor any formal training is required for operating in the industry. However, certified and formally trained business brokers are obviously met with more success at establishing their businesses in the industry.