Mid-Term Market Insights for Business Owners

As we have seen an unusual number of client conversations during the last couple of months, we wanted to share some of our observations from these meetings.

Generally speaking, we feel some sense of frustration among business owners with no clear direction of the economy. Quite a few business sellers seem to be uncertain, whether to move forward with a sale of their business now, or not.

This uncertainty is driven by five, distinct different factors:

• The upcoming election in November with its uncertain outcome generating considerable anxiety with little direction, in particular, after the last Presidential debate;
• A (certain) change of the tax laws effective January 1, 2026 with some of the previous tax laws reverting to the previous rates, makes the planning horizon more difficult as a delayed sale can result in significantly higher taxes;
• Interest rates are unlikely to decrease by any degree soon given the considerable amount of money that is still “swapping” in the economy with a continued strong investor appetite for solid, good businesses;
• Geo-politically, the world continues to be in two wars, with no end in sight, as a matter of fact, the Ukrainian war is starting to draw larger circles, while China is eyeballing Taiwan;
• Additionally, the seasonal slowdown from the end of June to Labor Day has always driven down transaction volume on the sell side – with sellers being on vacation and notoriously slow in responding;

All of these factors, or any of them independently for that matter, have the typical 60 year to 70 year old business owner retreat to a place of “emotional safety”, namely, to maintain a “status quo” and “work the business” as he/she has profitably done for many years prior, drawing a consistent income.

However, make no mistake, due to the forecasted demographic shift with baby boomers retiring, many businesses will eventually “come onto the market” – generating significant competition for investor dollars.

Our team has seen all of this enfolding in 2008 when many existing sell-side engagements became “unsellable” as cash flow declined post-Lehman, business values dropped, with sellers unwilling to adjust, and new sellers were not entering the market – only then for transactions to grow significantly thereafter, contributing to our 70% annual growth rate for each of the past seven years.

Ultimately, business owners who took early advantage of this temporary distortion between the number of investors and sellers, came out like winners when selling their business and retiring.

Nobody ever said that “market timing” was a game for the fainthearted!

In the decision making about whether to sell a business – setting individual lifestyle considerations aside – owners might want to focus on some of the following key issues:

• Interest rates are unlikely to go down any time soon, given the excess cash in the economy. Thus, to postpone a sale in hopes for a higher business valuation is very unlikely to materialize. A superior strategy is to structure a deal with an earn-out component when selling the business, and thus, hedging against undervaluation of future growth;
• Tax rates are projected to go up on January 1, 2026. With selling a business typically taking a year, it’s NOW the time to start the process (before everybody else does). With many transactions being asset sales, depreciation is recaptured at regular income tax rates (even for LLCs or Sub-S), thus, the increase in tax rates will have an impact;
• Our firm offers business valuations on a two-for-one basis: there is a free update within 24 months, so it’s better to get started now and to establish a “base line” for the value. Better yet, with our firm, a seller is not committed to sell in this initial valuation phase but merely obtains a value and deal structure, providing a basis for the tax advisor to then determine the net receipts of a contemplated transaction. Plus, we refund the valuation expense when a deal is closed;
• Nobody truly knows what the economy will be doing tomorrow, but based on our experience, values gained over the past twenty years, if the economy does indeed decline, a seller typically needs to wait five years with the sale of a business to obtain the same opportunities;
• The current environment remains a “seller’s market” – for example, end of June we put a business “onto the market” (always in a confidential, non-disclosing fashion), and have now received 110 buyer inquiries – in short, in 6 days, 110 investor inquiries, that is TWO inquiries, EVERY hour, EVERY business day!  As previously stated, plenty of investor money out there.

Our firm has been fortunate with extensive “marketing dry powder” to convert the above factors into a business seller’s advantage by tapping into our proprietary data base of 1M plus investor contacts.

Today, it might be just one of those times to start the process of selling a business now while hedging future upside developments with the proper deal structures – before tax rates go up, and before too many other businesses have been brought to the market.

Please contact us today for a free consultation