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Recession, Exit Planning & You

By Generational Equity

Recession Exit Planning

Note: The data discussed in this Insight post was based on a survey by the Wall Street Journal (WSJ) of 66 leading economists in mid-October, before the election of last week. Keep that in mind as you read this since, depending on the election results, some of this may be revised.

According to the latest review of leading economists by the WSJ, the general consensus is that the U.S. economy will likely enter a recession in early 2023 and will recover in the latter half of the year. Here is how the WSJ summarized their findings:

The U.S. is forecast to enter a recession in the coming 12 months as the Federal Reserve battles to bring down persistently high inflation, the economy contracts and employers cut jobs in response, according to The Wall Street Journal’s latest survey of economists. On average, the economists now predict GDP will contract at a 0.2% annual rate in the first quarter of 2023 and shrink 0.1% in the second quarter. In July’s survey, they expected a 0.8% growth rate in the first quarter and 1% growth in the second.

Forecasters have ratcheted up their expectations for a recession because they increasingly doubt the Fed can keep raising rates to cool inflation without inducing higher unemployment and an economic downturn. Some 58.9% of economists said they think the Fed will raise interest rates too much and cause unnecessary economic weakness, up from 45.6% in July.

As you can see from the sections highlighted above, the sentiments of the economists recently surveyed have certainly soured since mid-summer of 2022. The following graph shows the survey’s recession predictability in the past few years and the % assuming a recession in 2023:

Graph showing the probability of a recession in the U.S. in the next 12 months

The silver lining of this recent survey is that the likelihood of a recession in the last survey was slightly over 60%, far lower than the surveys in 2009 and 2020, which each accurately predicted a severe recession in 2008-2010 and a quick pandemic-driven one in 2020. And as noted above, these survey results may be revised since the survey was conducted before 3rd quarter GDP data was released which showed annualized growth of 2.6% in that quarter.

No matter what scenario plays out in 2023, the question for business owners is this: What does this mean to me?

A very good question indeed and one that you will all need to individually consider as you run your business. If demand in your niche slows, then naturally you will have to adjust.

But what should that mean to those of you who have an exit from your business in mind over the next 12 to 24 months? Regardless of economic swings, your need to plan for your eventual exit is paramount.

Two things to remember

  • Businesses are acquired during all economic cycles
  • Exiting a business is a process, not an event

Far too often business owners we encounter operate under the mistaken belief that when recession hits, buyers head for the hills. Nothing could be further from the truth. Certainly, buyers become more focused on their ROI, especially when interest rates increase (as they will be during this recession) and the velocity of deal closings slow (and due diligence lengthens), but deals still get done.

Frankly as you are working harder, faster, and smarter to maintain your business during a recession, buyers are doing the same, and in many cases over the years we have seen some buyers actually increase their activity during recessions.

But most importantly, exiting any business should not be seen as a single moment in time that you reach where the heavens open and the perfect buyer drops into your lap, before you head off into the sunset.

No, in reality, even during seller’s markets, you have to work very diligently to build a buyer ready business and the best way to do that is to have a professional, proven M&A firm by your side giving you the guidance to position your business for an optimal deal even during a recession (or any economic cycle for that matter).

The process, the journey as we see it, is really the key to the entire Generational program. We work with our clients for a long, long time, in many cases well beyond the number of years stipulated in our agreements because our goal is to help every client reach financial success and leave a fantastic legacy behind which will last for years.

To learn more about business cycles and their impact on M&A and how you can prepare your company for your journey, I would recommend now, more than ever before, that you attend a Generational Growth and Exit Strategy Conference. And I stress the word “growth” in the title of our conference in the context of where our economy may be in six months or so.

If you are interested in learning more about preparing your business for the next few months, please use the following links:

And remember this – Economists are experts at “predicting” recessions after they occur! In fact, the very definition of a recession (the textbook definition = two consecutive quarters of real GDP decline) cannot be determined until after the fact! If you try to time your exit to coincide with cycles beyond your control, well, you may really need exit planning advice!

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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Jay Dinnison, Owner of Sharpe Mixers
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Salvo Stoch, Founder and CEO of Sleeping Partners
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Betty L. Brennan, President, Taylor Studios
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Robert Evans, President and CEO of Mealtracker Dietary Software
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Shane and Johanna Kline, Owners of Vision Upfitters
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Terry D. Wickman, President, Keytroller
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Eric Erlandson, Owner, Action Fastenings, Inc.
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Jay Dinnison, Owner of Sharpe Mixers
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JoAnn Ellis, Owner of Fondren 5 Star Kennels
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Pete L.
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Larry Moore, Owner, A Company Portable Restrooms
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Bob and Debi Lee, Owners of BL Technology, Inc and BL Tl Services, LLC
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