Every Business Owner’s Question
At recent networking events, every conversation I have had has revolved around the same question:
How does today's economic uncertainty affect private company business valuations?
It’s a complicated topic, but generally speaking, uncertainty leads to increased risk and volatility, which in turn pushes valuation conclusions down. Business valuations during periods of economic instability often reflect decreased projected cash flows and higher perceived risk.
This provides a unique, albeit fleeting, opportunity for business owners to rethink value strategies, particularly with the estate tax exemption set to expire this year. Savvy owners can use this moment to engage in advanced wealth planning and protect long-term financial outcomes.
Several macroeconomic factors, including tariffs, national debt, interest rates, GDP, and inflation, fundamentally shape how businesses are valued. Consider which of these may impact your business most?
Trade policies, including tariffs, can raise operating costs for many businesses. When companies face increasing input costs or reduced access to materials, their profitability takes a hit, which affects valuation projections.
The U.S. debt-to-GDP ratio has skyrocketed, reaching 122% as of late 2024 (compared to just 60% in 2008). High debt impacts the economic climate by driving inflationary pressures and increasing borrowing costs, which trickles down to private businesses.
With fluctuating and generally higher interest rates (as of April 2025, U.S. constant maturity treasury rates hover around 4.38%), the cost of capital rises for businesses. For valuation purposes, this means discount rates increase, compressing the present value of future cash flows.
Economic uncertainty is also reflected in GDP growth rates. While earlier forecasts projected higher real GDP growth, revised estimates indicate a slowdown, with 2025 numbers hovering around 1.8%-2.1%.
Inflation reduces purchasing power and increases input costs for businesses. Despite some stabilization, long-term inflation estimates remain a concern for private companies.
We encourage business owners to manage their business as an investment. When uncertainty leads to reduced valuations, opportunities for strategic wealth transfer emerge. With the estate tax exemption set to expire, transferring ownership of a business at a lower value could reduce estate tax liabilities substantially. This window allows business owners to maximize wealth for future generations with effective planning.
Consider advanced strategies such as gifting shares of the company or setting up family trusts during this period. Lower valuations today could result in greater savings tomorrow, as asset values recover post-instability.
Work with a professional to revisit financial projections. Ensure they incorporate the impact of tariffs, rising costs, and other macroeconomic factors.
Business valuations rely heavily on the perceived risk of your industry and operations. Take stock of how external factors may increase volatility and ensure your valuation reflects reality.
Explore estate planning options with a trusted advisor to take advantage of the current market conditions.
Given the complexity of private business valuations, consulting with professionals ensures accurate assessments. Experts can account for market risks and shine a light on how you can protect your business value.
Economic uncertainty doesn’t just bring challenges; it also creates opportunities for informed decision-making. Lower business valuations open doors to estate planning strategies that can help secure your financial future and legacy.
If you’re ready to take the next step, we’re here to help. Contact us to schedule a consultation tailored to your business valuation and wealth planning needs. The right strategies today can safeguard your success tomorrow.