A Dallas investment banker was recently quoted in the Dallas Business Journal® telling clients to plan for a possible slowdown in the U.S. economy. According to the article published Aug 15, 2016: “I think there’s a greater than 50-50 chance of a recession next year,” Allegiance Capital Chairman David Mahmood said in an interview Monday. “This bull market is on its last wobbly legs.” Business owners who have done well and are thinking of soon selling off their life’s work will likely find few buyers and lower prices if the U.S. economy slips. Cashing at least part of the business out now, he said, might be worth it.
Our perspective at Megabite Restaurant Brokers, LLC echoes the sentiments expressed in the article. The current bull market has now surpassed lasted longer than the postwar bull market from June 1949 to August 1956. The average bull market typically last 4-4.5 years; we are now 7.5 years into this bull run AND we are in a Presidential election year. We forecast a 75% probability of a recession in 2017 given all of the market conditions. We further forecast that the recession will not be small. Our economy experienced the worse recession during 2009-2010 since the great Depression. Volatility and economic swings are likely to increase.
During 2007 and 2008, we had consistently recommended to oilfield service clients to consider exiting their businesses. We believed that oil prices could not continue at $120/barrel. Clients who heeded this advice, had strong exits at high earning multiples and peak valuation.
We are now recommending the same to business owners with companies whose sales are under $10,000,000. We feel that these businesses are the most vulnerable during the next economic downturn.
The Dallas Business Journal article goes on to further comment that there have been bright signs in the U.S. and Dallas market in particular. The U.S. economy added approximately 255,000 jobs last month. Increasing consumer spending is always another welcome indicator, but this spending is slowing down. The flip side is that there have been fluctuations in U.S. economic data and reduced GDP forecasts with whispers of a possible recession. The Olympics have highlighted that once up-and-coming economies like Brazil are sliding back into decay. Europe’s economies have been sluggish, at best, and Brexit will continue to impact European spending.
Business owners must balance opportunity for growth with preservation of their biggest source of retirement funding. Their business typically represents their biggest personal asset. If you feel that it may be time to explore ‘taking some off of the table’, then please contact us to explore an exit plan.
We have MANY active buyers such as this one:
Below are the characteristics of a target business for this Restaurant Buyer:
- breakfast, lunch cafe
- open to any concept
- quick casual service or counter service
- prefer open seating area
- annual sales of $300,000 to $1,000,000
- 2000 SF +/-
- seats 10-40
- looking for cities listed above but will consider others
- NO franchises
- experienced owner Restaurant Buyer
- will add cooking academy, classes and bistro
- owns food manufacturing in 4000 SF
- liquid funds $500,000+, net worth $1,200,000+
- Ability to borrow SBA 7a loan
Megabite Restaurant Brokers, LLC
Phone: (817) 467-2161
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