Now that the midterms are over and the Democrats have taken back both the House and the Senate, I think it’s fair to expect the political strife to continue. Democrats can set the congressional agenda, and President Trump still has the veto. Some of the first proposals may very well be familiar ones. Democratic leaders are already talking about restoring enhanced Obamacare subsidies and reversing Medicaid cuts. That sets up a fight over what gets funded, what gets cut, and who pays for it.

When it comes to inflation, I’d put more weight on what actually becomes law. A large spending package financed by borrowing could add to inflation if it increases demand faster than businesses can supply goods and services. The same goes for tax cuts that add to the deficit. And inflation was already running above the Fed’s target before the election. Its preferred measure rose from 3.4% in August to 3.6% in September. The Fed held its policy rate at 3.75% to 4.00% in October, with two officials voting for another quarter-point increase. If inflation stays elevated and employment holds up, rates could stay high for longer or climb again. Federal Reserve on fiscal policy · BEA inflation data · October Fed decision

For small business owners, especially baby boomers looking to retire in the next five years, higher rates can hit twice. First, they can take cash out of the business while you’re still running it. If you carry an average balance of $250,000 on a variable-rate line of credit and the full two-percentage-point increase passes through, that’s another $5,000 a year in interest. If wages and materials are also going up faster than you can raise prices, there’s less cash left for inventory, equipment, or your own income. Owners with fixed-rate debt generally feel the direct effect when they refinance or borrow again. Federal Reserve Small Business Credit Survey

The second hit comes when the buyer sits down with a lender. Say a buyer needs to borrow $1 million over 10 years. At 8%, the annual payments are about $145,600. At 10%, they’re about $158,600. At 12%, they’re about $172,200. If the business can still support only $145,600 in annual loan payments, the buyer can borrow about $918,000 at 10% or $846,000 at 12%. Those are illustrative rates, but the dollars show how a business can be just as profitable as it was a year earlier and still draw a lower offer. SBA guidance on acquisition loan terms

At 10%, someone has to close that $82,000 financing gap to keep the same sale price. The buyer can put in more cash, the seller can finance part of the price, or they can agree on a lower price. If several owners in the same market put similar businesses up for sale while financing is expensive, buyers who can close may have more room to negotiate. A seller note can preserve the price on paper, but it also leaves part of the seller’s retirement money dependent on the new owner’s ability to run the business and make the payments. Waiting for a better offer means staying in the business longer than you planned.

If I were looking to sell within five years, I’d want two numbers in front of me. What can a buyer afford if borrowing costs are two points higher, and how much cash do I need at closing to retire on schedule? If those numbers are far apart, I’d want to know while I still have time to improve cash flow, adjust my timing, or decide how much of the purchase price I’m comfortable being paid after I hand over the keys.

The best time to find out what your business is worth and what a deal could put in your pocket is well before you decide to sell.