Exit Strategy and Succession Planning:

Tracking to the Business Cycle By Robert Gellman

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The following is presented to help the reader assess the stages of a business cycle like a road map. Understanding where the cycle is today and what lies ahead for the economy, should provide insight for those considering their exit time frame.

The six typical stages of a business cycle are:

1. Economic Slowdown. During an economic slowdown, theeconomy is sluggish. Long-term interest rates peak and short-term interest rates begin to fall. Investors often buy (or investin) interest-sensitive companies (e.g., businesses with valuesthat drop when rates are rising, such as banks, utilities andother yield-sensitive companies) during this time.

Exit and succession strategy planning involves looking forward into an uncertain future. Establishing an approximate time frame for one’s exit should involve an assessment of personal goals and aspirations within the context of the ebb and flow of the business cycle.

While it is highly advisable to be aware of the impact of various cycles on a particular business and product line, one must have a general sense of the impact of business cycles in general.

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Economic decline. As the cycle comes full circle, “early cycle” businesses are favorable again.

6.

Economic peak. In an economic peak, major stock market indexes (e.g. the Dow and S&P 500) may dip below their 12-month moving averages. Inflation is likely peaking.

5.

Full expansion. In a full expansion, interest-sensitive businesses generally peak.

4.

Mid-cycle recovery. During a mid-cycle recovery, interest rates begin to climb. Signs of inflation loom. Business values generally perform better than bond prices during this time. Remember, as interest rates rise, bond prices fall (and visa versa).

3.

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Anticipated Recovery. During an anticipated recovery, low interest rates encourage consumer spending. As a result, consumer-oriented business values (e.g. companies that manufacture consumer-oriented products, such as food, beverage and pharmaceutical companies) typically rise, though values in general are low.

2.

Bob Gellman has advised business owners in matters involving wealth creation and asset protection for over 20 years. As a shareholder of two companies and Chief Operating Officer of the firm’s wealth management practice, Bob’s experience includes his participation in his firm’s succession strategy as it merged with CBIZ, Inc. in 2005. Bob’s experiences led him to author the book, The Seven Keys to Unlocking the Door to Your Dreams: Exit Strategies for Business Owners, which establishes the foundation for his workshop of the same name. Bob continues his practice with CBIZ MHM, LLC as a CPA, Director of Tax Services and AICPA Personal Financial Specialist.

Planning to exit when market values for a particular business are at their highest should be done with an eye toward the nature of the business and the stage of the business cycle when that business should enjoy its best market opportunities.

About the Author

The interest rate yield curve provides a visual representation of the market’s interest rate expectations in terms of magnitude and timing. Tracking the yield curve provides insight into the upcoming stages of the business cycle.

© Copyright 2009 CBIZ, Inc. All Rights Reserved.

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Bob Gellman CBIZ MHM, LL. (858)795-2110

bgellman@cbiz.com