March 15, 2023
Banks Going Bust
The US stock market had a difficult week due to concerns about a banking crisis and rising interest rates. The Federal Reserve’s decision to raise interest rates at the fastest pace in decades has led to a liquidity drain from the economy. Banks have been hit particularly hard by the uncertainty, with Silicon Valley Bank being taken over by regulators after its parent company’s shares plummeted over 60% for the week. The high cost of labor is one catalyst keeping inflation stubbornly high, and companies have had to raise wages to attract and retain workers. Despite positive labor market data and consumers’ spending power, there are indications of cracks in the economy. The yield curve is also pointing to a recession in late 2025. While a recession does not appear to be imminent, there are plenty of red flags, and the Federal Reserve’s actions are contributing to market instability.
Business Getting Better
On the other hand, the NFIB Small Business Optimism Index increased to 98.4 in February, up 0.8 points from January, indicating that small business owners’ optimism about the economy is improving but is still below pre-pandemic levels. The rise in optimism was driven by an improvement in the outlook for business conditions and sales expectations. However, there was also an increase in reports of supply chain disruptions, and hiring activity remained weak. The percentage of small business owners who reported job openings that they could not fill rose to 42%, a record high, reflecting a mismatch between the skills small businesses require and the skills that are available in the labor market. In addition, inflation concerns have risen, with 25% of small business owners citing inflation as their top business problem. The survey also found that small businesses are continuing to face difficulties accessing credit, with only 40% of those surveyed reporting that they were able to obtain the financing they needed.
These challenges related to labor shortages, inflation concerns, and supply chain disruptions are still hindering small businesses’ recovery. Access to credit remains a key issue, and policymakers will need to address these challenges to support small business recovery and strengthen the broader economic recovery. The state of the economy is uncertain, and while the Federal Reserve’s actions are contributing to market instability, small businesses are facing a range of challenges that need to be addressed. The optimism index is a positive sign, but policymakers need to continue to focus on supporting small businesses to ensure a strong and sustainable recovery.
Capitalizing on Challenges
Despite the uncertainty in the market, buying or selling a business can be a good idea for several reasons.
- The current economic climate presents opportunities for savvy entrepreneurs to capitalize on the challenges faced by small businesses. For instance, businesses that can offer solutions to labor shortages and supply chain disruptions could see a surge in demand, leading to potential growth and profitability.
- The increasing optimism among small business owners, as indicated by the NFIB Small Business Optimism Index, suggests that there is a growing confidence in the economy’s post-Covid recovery. As businesses become more confident, they may be more willing to invest in growth opportunities, including acquiring or selling a business. This can create a favorable environment for buyers and sellers looking to make deals and expand their operations.
- The challenges faced by small businesses, including access to credit and financing, could lead to attractive deals for those looking to buy or sell a business. Small business owners may be more willing to sell their businesses if they are struggling to obtain financing, while buyers with access to capital may be able to take advantage of these opportunities.
- While there are indications of cracks in the economy, including the yield curve pointing to a recession in late 2025, a recession is not imminent. This means that businesses that are well-positioned to weather potential economic downturns could see significant returns on their investments over the long-term.
In summary, while there are challenges in the economy, including market instability and supply chain disruptions, buying or selling a business can present opportunities for successions and exits or growth and profitability. The increasing optimism among small business owners, combined with attractive deals and potential returns on investment, make this a good time for entrepreneurs to consider expanding their operations through acquisitions or sales. However, it is important to carefully assess the risks and opportunities before making any major investment decisions.