If you’re building toward a successful exit, one thing is certain:
The economy won’t wait for you to be ready.
Markets expand. Markets contract. Buyer sentiment shifts. Capital availability changes. And all of it directly affects how — and when — you should sell your business.
Having been through multiple economic cycles as both a founder and investor — including the 2008 crash shortly before I exited Pepperjam — I’ve seen firsthand how external macroeconomic conditions can either accelerate a deal… or kill it on the spot.
In this article, I’ll help you understand:
- How different phases of the economic cycle affect buyer behavior
- What you should do before, during, and after a downturn
- How to adapt your M&A strategy when macro conditions change
- And why The Entrepreneur’s Exit Playbook emphasizes timing with both internal and external factors
Let’s dig in.
Understanding Economic Cycles
There are four classic stages of the economic cycle:
- Expansion – GDP growth is strong, buyers are optimistic, capital is cheap.
- Peak – Growth slows, inflation may rise, valuations begin to plateau.
- Contraction – Recessionary pressure, capital tightens, buyers retreat.
- Trough – Economy bottoms out, smart money starts re-entering cautiously.
Each stage influences how buyers think — and what they’re willing to pay.
What Buyers Care About During Expansion
This is the founder fantasy phase: high deal volume, aggressive buyers, and headline-worthy multiples.
Buyer mindset:
- “Let’s find the next rocket ship.”
- “We can fix operational gaps post-close.”
- “Growth justifies risk.”
Your strategy:
- Highlight revenue expansion and TAM (Total Addressable Market)
- Play offense with your narrative: “We’re growing fast, and you’re lucky to get in now.”
- Focus on future-state value, not just trailing EBITDA
- Run a competitive process — multiple buyers will be interested
The Entrepreneur’s Exit Playbook emphasizes that exits during expansion phases reward bold, disciplined storytelling. Don’t hide your ambition. Let buyers see it.
When the Market Peaks: Beware of Complacency
At the top of the cycle, founders can be lulled into thinking the window will stay open forever.
But buyers start getting cautious:
- Diligence gets more intense
- Terms get more structured (earnouts, holdbacks)
- Valuation discipline tightens
Kris’s experience:
At Pepperjam, I saw this firsthand. As the GSI Commerce acquisition evolved, we knew the market was starting to cool. We pushed hard to close fast and maintain momentum — because I didn’t want to be negotiating terms if sentiment turned.
That urgency paid off.
What Happens During a Downturn
Recessions and contractions change everything:
- PE firms get tighter with capital.
- Strategics pause M&A to focus inward.
- Valuations drop — sometimes by 20–40%.
- Buyers get pickier — and slower.
Founder mistake: Trying to rush a sale mid-downturn
If you’re not already in process, trying to launch an exit in a cold market puts you at a disadvantage.
Buyers know you’re motivated. They’re not.
How to Win During a Downturn
You don’t have to give up on exit plans — but you do have to shift your playbook:
- Emphasize profitability and capital efficiency
- Show recession-proof revenue streams
- Prepare to accept structure (partial cash, seller notes)
- Reframe your story: “We’re surviving while others are dying — and we’ll thrive when the cycle turns.”
In The Entrepreneur’s Exit Playbook, I talk about building optionality into your strategy. Downturns are when that mindset matters most.
Ed’s Perspective: Ride the Cycle, Don’t Fight It
On the Legacy Advisors Podcast (listen here), Ed Button and I often discuss cycle-aware exits.
One quote that stands out:
“The best founders don’t try to beat the market. They build with discipline and position themselves for when the market returns.”
This mindset keeps you calm when others panic — and puts you at the front of the line when buyers come back.
How to Prepare in the Trough
When the economy hits bottom, deals don’t disappear — but they evolve.
Buyers get opportunistic:
- They want distressed deals
- They look for assets with low valuations and quick upsides
- They often seek founder fatigue as leverage
But here’s the upside:
- Smart founders can pivot, restructure, and build
- You can acquire weaker competitors
- You can become a future platform
This is when we help founders build a strategic moat that will attract buyers as expansion begins again.
Three Founder Profiles — and What to Do Based on Cycle
The Burned-Out Operator
Risk: Trying to sell in a cold market due to personal exhaustion
Fix: Partner with capital, recruit leadership, and defer the exit until macro conditions improve
The Growth-Stage Rockstar
Risk: Over-raising or over-hiring at the top of the cycle
Fix: Shift to profitability, reduce CAC, extend runway to time a better exit window
The Recession Warrior
Risk: Missing the window by staying “too heads-down”
Fix: Build a light M&A prep team, monitor signals, and quietly test buyer interest
Questions Every Founder Should Ask Before Selling
- Where are we in the economic cycle?
- How are buyers in my sector behaving right now?
- Are valuations rising, flat, or falling?
- How would a buyer finance this deal today?
- What’s my risk tolerance if I wait 12–18 months?
- Am I reacting emotionally — or planning strategically?
These are the same questions we work through with clients at Legacy Advisors every week.
Forecasting Through Economic Volatility
Founders who win across cycles know how to forecast realistically.
Here’s how to build that:
- Create conservative, moderate, and aggressive scenarios
- Track lead indicators (pipeline, churn, payback period)
- Use historical performance during past downturns to predict resilience
- Build a financial narrative that buyers can believe — even when the market is shaky
If your forecast is bulletproof and cycle-aware, you’ll stand out — no matter the stage.
Capital Structure Strategy: Now Matters Later
As the book details, your capital structure today shapes what kind of exit you can achieve tomorrow.
During recessions or contraction phases, focus on:
- Avoiding over-leverage (debt can sink deals)
- Cleaning up the cap table
- Reducing investor complexity
- Creating pathways for partial liquidity instead of binary outcomes
When the economy bounces back, you want to be ready — and uncluttered.
Real Deal: When the Market Turned Mid-Process
We once advised a founder who entered diligence in an expansion phase… and got caught as rates spiked and buyers froze.
Instead of backing out, he worked with us to:
- Recast the forecast
- Offer a seller note to reduce buyer risk
- Rebuild the narrative with a focus on resiliency
- Pause and revisit after two quarters of stronger results
The deal closed six months later — with better terms than expected.
Timing wasn’t perfect — but strategy won out.
What I Teach in The Entrepreneur’s Exit Playbook
Economic cycles are a major theme in the book (available here) because they affect:
- Your exit readiness
- Your buyer targeting
- Your valuation range
- Your deal structure
- Your timeline for re-entry if needed
The founders who follow our roadmap don’t panic when the economy shifts — they pivot with discipline.
Final Thoughts
You can’t control the economy — but you can control your strategy.
You can time your narrative to the market.
You can manage your capital like a future acquirer would.
You can forecast in a way that builds trust.
And you can position your company to be the obvious choice — no matter the cycle.
Remember:
- Booms reward growth
- Busts reward discipline
- Peaks reward speed
- Troughs reward preparation
If you want to engineer your exit — not just hope for one — you need to think like a founder… and like a buyer.
That’s the Legacy mindset.
Frequently Asked Questions About How Economic Cycles Impact Exit Strategy
How do economic cycles affect business valuations during M&A?
Valuations often mirror the economic cycle. In expansion phases, valuations tend to rise as buyer confidence increases and capital is more available. Buyers may be willing to pay a premium for growth and future potential. During contraction or recession phases, valuations typically drop — buyers become more risk-averse and demand stronger evidence of profitability and stability. As a founder, you should track deal comps in your sector and understand how valuation expectations shift depending on the cycle. Kris Jones emphasizes in The Entrepreneur’s Exit Playbook that waiting for a better market is smart — but only if you can continue building enterprise value in the meantime.
Is it possible to exit successfully during a downturn or recession?
Yes — but the playbook changes. Instead of focusing on growth-at-all-costs, buyers will be looking for resilience, recurring revenue, and operational efficiency. You’ll likely face more structure in the deal (e.g., earnouts or seller financing) and slower processes. The founders who succeed during downturns are those who come prepared with clean financials, strong forecasting, and a calm, confident narrative. Kris shares in the Legacy Advisors Podcast that even in tough markets, buyers are always looking — they’re just more selective. Being one of the few well-positioned founders means you can still get a deal done.
What are some indicators that the market is at a peak and I should consider selling?
Several signs suggest you’re near or at the top of a cycle: valuations across your sector are hitting all-time highs, private equity firms are deploying capital aggressively, strategic buyers are making splashy acquisitions, and deals are closing quickly with high cash at close. These conditions can create a “founder frenzy,” but they don’t last forever. Kris notes that many founders hesitate — believing things will keep getting better — only to miss the window. If you’re seeing strong inbound interest and your numbers are solid, it may be time to seriously consider an exit.
How can I prepare now if I suspect a downturn is coming?
Start by improving margin, reducing unnecessary expenses, and focusing on cash flow. Reassess your capital structure — avoid over-leveraging the business. Make your forecasts conservative and realistic. Strengthen customer retention and reduce concentration risks. Begin building your M&A materials — data room, CIM, management presentation — so you’re ready if the right buyer approaches. As Kris outlines in The Entrepreneur’s Exit Playbook, preparation during the quiet periods allows you to move quickly when the cycle turns back in your favor.
What happens if the market shifts while I’m already in the middle of a sale process?
You have two main choices: adjust or pause. If you adjust, expect buyers to renegotiate — usually offering more structure or less cash upfront. This is where having strong advisors (like Legacy Advisors) makes a difference. They can help you restructure the narrative, justify your forecast, and protect value. If you choose to pause, use the time to strengthen your position and relaunch when sentiment improves. Kris has worked with founders in this exact situation — and while it can be frustrating, smart adjustments can still result in excellent exits with the right planning and patience.