March 14, 2024 •Oak Street Funding
Business owners may be wondering what’s ahead in 2024 as they try to make critical business decisions. Is it going to be a good time to consider buying or selling a business? How can businesses best chart their way through the next three months while helping their clients make the most of the current economic climate.
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Oak Street Funding President Alicia Chandler spoke with Marc Chandler (no relation), Chief Market Strategist at Bannockburn Global Forex, about those topics and more in our recent webinar. Read on to get their take on sailing into second quarter.
Know the economic waters
According to Marc, the Feds seem to have finished monetary tightening, but the timing and size of rate cuts are still somewhat murky. The promising inflation numbers of Q4 2023 heated up the market, with some hoping for a seven-cut bonanza for 2024. Inflation’s persistence and strong jobs numbers in January brought a dose of reality with the market’s view now more closely aligned with the Fed’s.
Marc expects some market slowing later this year, but he tempers that prediction with the historical view that the U.S. economy rarely contracts, nor does the stock market weaken, in the fourth year of a presidential term. Those events are more likely to occur early in the next presidential term. He anticipates an easing cycle starting mid-year and continuing into 2025 as the economy slows?
Look for buying or selling opportunities
Rather than sitting tight and waiting for interest rates to drop, Alicia sees second quarter 2024 as a good time to get ready to take advantage of new opportunities. “It's a good time to reassess and prepare for the future and take a look at what's out there in the market,” she says.
Updating a business plan, streamlining operations, and honing a succession plan are steps an owner can take now to make it easier to capitalize on sales or purchase opportunities later, if they arise. It’s not a time to drop anchor, but rather a time to plan for the future and be ready to move ahead. She points out that many deals successfully closed in first quarter, and that valuations for RIA, CPA, and insurance firms have remained high.
Educate yourself and your clients
Advisory professionals, such as CPAs, RIAs, and insurance agents, not only have to navigate tricky economic waters to run their business, but they must also help their clients do the same. To stay abreast of macroeconomic trends, Marc suggests a great resource, the Chicago Mercantile Exchange (CME).
The CME trades Fed funds futures, which is the overnight rate that banks charge each other, and it gives a good guide to what the market is expecting for Fed policy. He also recommends Fed Watch, a page he uses almost every day to try to figure out what the market thinks about Fed policy and where interest rate policy is likely to go.
For a third perspective, he suggests following the Atlanta Fed GDPNow, which estimates GDP growth for the current quarter using a methodology similar to the one used by the U.S. Bureau of Economic Analysis. GDPNow releases their estimate prior to the official figure, which goes out with a delay. According to Marc, the Atlanta Fed GDPNow rivals the surveys for who's more accurate.
Reduce your risks
No matter how educated someone is about the economic environment, unexpected storms can blow up and threaten to throw a business off course. While you can’t protect yourself against risks, there are steps to reduce them.
Alicia points out that well-thought-out succession plans can help mitigate risk, but many business owners don’t have one. For example, you may think you want to have a certain employee take over your business after you retire, but without open and honest discussions to craft a succession plan early, that vision may fall apart. Why?
Your intended successor may be planning to move to another city because of their spouse’s work, need to focus on caring for a family member, or they simply may not have interest in an ownership role. If you don’t have clear plans in place for moving the company forward upon your exit, employees may get nervous. If they jump ship for what seems like a more secure firm, the sale value of your business could be lowered.
In what used to be an arena only for large companies and asset managers, there are now tools for reducing currency and interest rate risks for small- to medium-sized businesses, notes Marc. He points out that one of the most important ways to mitigate risk is to protect a company’s human capital.
Strengthening the employer-employee relationship and building a company culture that provides staff professional development can help a business weather a variety of storms. He advises building a team with a diverse set of problem-solving skills, so someone on the team will have the ability to address challenges, if they arise.
Moving forward
Overall, the economic outlook moving into spring looks positive, with expectations for an economic slowdown later in the year. You can make the most of these conditions by staying up to date on economic trends and watching for purchase and sale opportunities that match your goals. Succession planning, currency and interest rate risk mitigation tools, and protecting your firm’s human capital can make it easier to sail smoothly through uncertain waters.
Oak Street Funding
Oak Street Funding (OSF) is a First Financial Bank company specializing in loan products and services to insurance agents, CPA firms, and financial advisors.
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Disclaimer: Please note, Oak Street Funding does not provide legal or tax advice. This blog is for informational purposes only. It is not a statement of fact or recommendation, does not constitute an offer for a loan, professional or legal or tax advice or legal opinion and should not be used as a substitute for obtaining valuation services or professional, legal or tax advice.