Don’t Wait for Rates

At the beginning of 2024 the market was led to believe that there would be multiple rate cuts. Yet the Fed met in early June and there hasn’t yet been one (though one, and one only, is forecast before the end of the year). Instead, Fed Chairman Jerome Powell has kicked the ball into the long grass, claiming that “rate cuts that might have taken place this year, take place next year.” What does that mean for buyers and sellers in the small business marketplace?

Don’t Fixate

Sellers have been known to wait for the “perfect time to sell,” and we can tell you from many years of experience that such timing rarely occurs. What makes more sense is “the right time to sell” and that’s grounded in circumstances that both buyers and sellers have real control over. Searching for perfection can often lead to disappointment in life, not just in buying and selling businesses.

What we’ve seen in the last 12 months, as the federal funds rate has stayed in the 5.25-5.5% range, the highest in 23 years, is that there are still good buyers chasing good businesses. Because their primary goal has been to capture a great business, they have looked for that first and then worked on financing after identifying the right business. In certain circumstances, given the current rate climate, we’ve seen some flexibility from sellers given expected cash flows in relation to higher bank loans.

If, however, potential buyers are waiting on the sidelines for the “right rate” they should keep in mind that others may think this way as well, and when they wade back in when “rates are right” they might get caught in a bidding war for a business, leading any “savings” from “waiting” to turn into a premium they end up paying.

Trust the Market

That leads us to our second point. Whatever your thoughts on politics and government, many would agree that when the Fed is seeking to intervene it’s trying to adjust for something that is already happening.

Yes, there is much uncertainty in the world at the moment, and domestically, it’s an election year, but we can only report to you what we are seeing and hearing, and that is that businesses are being bought and sold. 2023 was our best year ever at Apex and midway through this year we feel confident that we are going to have another good year.

A solid business doesn’t rise or fall based on interest rates in the market. The same goes for when you buy a business. If it’s a solid business at this time, it will be whether rates go up or down. And as we’ve said (and seen) if the business is a good fit, a seller might be willing to make a concession on price to help make the financing work for serious buyers.

As we said, serious buyers are interested in the right business, not the perfect interest rate.

Thinking of coming off the “interest rate” bench? We’d love to talk to you about what’s available right now. Give us a call.