There is rarely a perfect time to buy a business. In a strong economy, good businesses are expensive and sellers are confident. In a weak economy, valuations may become more attractive, but buyers have to deal with greater uncertainty.
Australia is heading toward 2027 with plenty of that uncertainty. The Reserve Bank of Australia has raised interest rates again. Energy prices have been pushed higher by the conflict involving the United States, Israel and Iran. Global government bond markets have experienced another period of sharp volatility. At the same time, the Albanese Labour Government has introduced significant changes to Australia's tax system that will affect investors, businesses and asset owners over the coming years.
For an inexperienced buyer, the instinct may be to wait until everything settles down. Experienced investors often think differently. They know that uncertain periods can create some of the best acquisition opportunities, because fewer buyers are willing to act, financing becomes harder, sellers become more realistic about price and weaknesses that were hidden during easier economic conditions suddenly become visible.
The objective is not to correctly predict every interest rate decision, oil price movement or tax change. The objective is to buy a business that can still produce an acceptable return if conditions remain difficult.
Economic uncertainty tends to separate strong businesses from those that were benefiting from unusually favourable conditions. When money is cheap, demand is strong and input costs are stable, many businesses can appear successful.
Higher interest rates and higher operating costs change that. Companies with weak margins, poor pricing discipline, excessive debt, inefficient operations or fragile customer relationships often begin to struggle. Well-managed businesses may continue performing.
For an acquirer, that makes due diligence more revealing. A business that can demonstrate stable cash flow through difficult conditions may actually be more valuable than a business that produced spectacular growth during an economic boom but has never been tested under pressure.
Interest rates are one of the most important differences between the acquisition environment of recent years and the environment buyers may face in 2027. As at late September 2026, the RBA cash rate target stands at 4.60 percent after a series of increases during 2026.
The important issue for a business buyer is not simply the cash rate itself. It is what happens to the cost of the money being used to purchase the business.
A buyer using bank debt may pay considerably more than the RBA cash rate once the lender's margin, risk pricing and other costs are included.That changes the amount of debt a business can safely support.
Consider a simplified example....
A buyer acquires a business for $6 million and finances $3 million of the purchase price with debt.
If the effective interest cost is 5 percent, annual interest is around $150,000.
If that same debt costs 8 percent, interest becomes around $240,000.
That is an extra $90,000 leaving the business each year before principal repayments are considered.
For a company generating $700,000 in maintainable earnings, that difference matters.
For a company generating $5 million, it may be much less significant.
This is why higher rates can have a disproportionate effect on smaller leveraged acquisitions.
It is easy to become excited about a business producing strong EBITDA.
But EBITDA does not pay the bank by itself.
Buyers need to understand the actual cash remaining after:
A business can report impressive accounting earnings and still produce uncomfortable cash flow once debt repayments begin.
Experienced buyers therefore model the acquisition under several interest rate scenarios.
They might ask:
If the answer only works when interest rates fall quickly, the buyer may be taking more risk than they realise.
There is another side to higher rates. Some potential purchasers simply disappear from the market. Highly leveraged buyers can no longer justify previous valuations. Private investors may become more selective. Banks may reduce the amount they are prepared to lend.
That can reduce competition for businesses. A seller who might previously have received ten enquiries may receive five.A seller expecting a seven-times earnings multiple may discover that buyers can only make the numbers work at five or six times.
For a well-capitalised acquirer, this can be an advantage. Higher interest rates are often associated with broader inflation pressure. A business that cannot increase its prices when costs rise may see margins compressed. When assessing an acquisition, look at what happened to pricing during 2025 and 2026.
Did management raise prices?
Did customers accept those increases?
Were margins maintained?
A business with genuine pricing power can be significantly more resilient than one competing almost entirely on price.
Higher mortgage payments reduce discretionary household spending.
This does not affect every business equally.
Businesses selling essential services may be relatively resilient.
Businesses selling discretionary products to mortgage-heavy households may feel the impact much more quickly.
Areas worth examining carefully include businesses dependent on:
This does not mean these industries should be avoided.
It means the buyer should stress-test demand rather than valuing the business solely on its strongest historical year.
Energy prices are another major issue heading into 2027. The Middle East conflict involving Iran, the United States and Israel has disrupted energy markets and shipping routes. Brent crude has recently traded above US$100 a barrel, while refined fuel markets, particularly diesel, have also faced considerable pressure.
Australian businesses feel this in different ways. For a software company with remote employees, fuel may barely matter. For a transport company running 80 trucks, it can fundamentally change profitability.
Do not simply look at last year's fuel expense. Ask how fuel flows through the business model.
A transport company may spend $2 million per year directly on diesel. A manufacturer might spend relatively little itself but pay significantly more for inbound freight and outbound distribution. A construction company may have vehicles, machinery and subcontractors all affected by fuel. A wholesaler may experience higher freight charges from suppliers.
A food company may see transport costs embedded throughout its supply chain.
The buyer needs to understand both direct and indirect exposure.
This is one of the most important questions for fuel-intensive businesses. Some transport and logistics contracts include fuel levies that adjust when diesel prices change.
Other businesses operate under fixed-price contracts and must absorb the additional cost themselves. Those are very different businesses during an energy shock.
Review:
A business does not necessarily need low fuel costs. It needs a business model capable of dealing with changing fuel costs.
A company may technically have the ability to pass fuel costs on, but timing matters. If fuel rises today and customer pricing is only reviewed every six months, margins can be squeezed for a long period. Experienced buyers look at that lag. A monthly fuel surcharge is very different from an annual contract renegotiation.
High fuel prices can reveal problems that were previously easy to ignore.
Examples include:
A buyer with stronger logistics systems may actually see an opportunity.
What appears to be a fuel problem may partly be an efficiency problem.
Not every business suffers from expensive energy.
Higher energy costs can increase demand for businesses involved in:
Economic disruption often changes where money is spent rather than simply reducing all spending.
Many small business owners hear about government bond markets and assume they have little relevance to buying an Australian business.
That is a mistake. Government bond yields influence the wider cost of capital. When yields rise sharply, investors can earn higher returns from relatively low-risk securities.
As a result, they generally demand greater returns from riskier assets. A private business is one of those riskier assets.
Suppose investors can earn a materially higher return from government bonds than they could several years earlier. Why would they accept the same return from an illiquid private business carrying customer risk, employee risk and operational risk?
They generally will not. The required return from business ownership may rise. That can translate into lower valuation multiples.
This is particularly relevant for businesses previously valued aggressively because buyers had few attractive alternatives for capital.
The RBA has warned that rising global sovereign bond yields and a disorderly repricing in major bond markets could spill into Australia. Australian banks remain well capitalised and the domestic financial system is considered resilient, but Australia is not isolated from global funding markets.If international investors demand significantly higher returns, funding conditions in Australia can tighten as well.
For a business buyer, that can mean:
This is another reason experienced investors arrange funding early rather than assuming finance will be available once a transaction has been agreed.
A business selling at four times earnings is not automatically cheaper than one selling at six times. The four-times business may have falling earnings, excessive debt, weak customers and heavy capital expenditure. The six-times business may have recurring revenue, low debt, strong management and stable margins.
Valuation multiples need context. In uncertain markets, quality often becomes more valuable, not less.
Instead of concentrating only on the multiple, consider what the acquisition actually produces on the capital invested. If a buyer invests $4 million of equity and receives $800,000 of sustainable annual free cash flow after realistic costs, the underlying economics can be compared with alternative investments.
This becomes particularly important when bond yields and borrowing costs are elevated. Investors should be compensated for taking business risk.
Australia's tax system is also changing. The 2026 federal budget tax reforms includes a combination of measures affecting workers, investors and businesses. Some of the changes increase taxes in particular areas, while others provide new concessions or greater flexibility for businesses.
A buyer should understand both sides.
One of the most significant investor changes is the reform of the general 50 percent capital gains tax discount. From 1 July 2027, the Government's new framework replaces the general flat 50 percent CGT discount with an inflation-based approach and introduces a 30 percent minimum tax rate on real capital gains.
The changes are prospective. Value built up before 1 July 2027 is treated under the previous rules, while gains accruing after that date are subject to the new arrangements. For business buyers, this matters when considering the eventual exit. An acquisition should never be justified solely by tax treatment, but after-tax returns are part of any sensible investment analysis.
The small business CGT concessions remain available where the relevant eligibility requirements are satisfied. The Government has also announced an increase in the turnover threshold for the 50 percent active asset reduction from $2 million to $10 million from 1 July 2027.
This means business owners and investors should not assume that the broader CGT changes automatically remove existing small business concessions. The interaction between entity structure, ownership, active assets and the eventual sale can be complex, so tax advice should be obtained before purchasing rather than years later when the owner decides to sell.
From 1 July 2027, the Government's reforms limit negative gearing benefits for established residential property, while new builds retain more favourable treatment under the new arrangements. Properties acquired before the relevant announcement date have transitional protection under the Government's rules.
This does not mean residential property suddenly becomes unattractive. However, it may change the relative appeal of different investment classes for some Australian investors.An established profitable business can offer something residential property often does not: the ability for the owner to actively increase earnings.
A buyer can improve pricing, reduce costs, introduce technology, expand products, acquire competitors or improve management.
That ability to influence the outcome may become increasingly attractive to investors who previously concentrated most of their capital in passive assets.
The Government has also announced a 30 percent minimum tax for discretionary trusts from 1 July 2028, subject to exemptions and detailed rules.Small businesses using discretionary trusts have also been offered restructuring support and rollover relief arrangements.
For someone buying a business in 2027, this makes acquisition structure more important. Do not simply use the same structure you used to purchase an investment property ten years ago. Before signing a contract, obtain advice on whether the acquisition should be made through:
The correct answer depends on tax, asset protection, financing, future investors, succession plans and the eventual exit strategy.
From 1 July 2026, the $20,000 instant asset write-off has been made permanent for eligible small businesses using the simplified depreciation rules.
This can improve cash flow for qualifying purchases because eligible assets costing less than the threshold may be immediately deductible for tax purposes rather than depreciated over a longer period. For a buyer acquiring a business that regularly purchases tools, computers or smaller items of equipment, the measure may be useful.
It should not drive an acquisition decision, but it is part of the after-tax cash flow picture.
Another important business tax measure is the permanent two-year loss carry-back available for eligible companies with turnover up to $1 billion from the 2026-27 year. In broad terms, the measure can allow an eligible company experiencing a loss to offset that loss against certain previous taxable profits, subject to the detailed rules.
This can matter during uncertain economic conditions. If an otherwise healthy business experiences a temporary downturn following an acquisition, tax settings that improve cash flow can make the company more resilient.
Again, this is something to discuss with a qualified tax advisor because eligibility and practical benefits depend on the circumstances of the business.
Nobody buying a business in 2027 will know exactly where interest rates, oil prices or bond yields will be twelve months later. Trying to predict them precisely is usually less useful than asking whether the business survives if the prediction is wrong.
A buyer might model:
If the company remains profitable and can continue servicing its debt under those conditions, the acquisition has a much stronger margin of safety.
One advantage for buyers entering 2027 is that the previous year has already subjected many Australian businesses to difficult conditions.
Rather than relying entirely on hypothetical forecasts, examine what actually happened.
Ask:
A company that remained strong through a difficult period has demonstrated something useful.
This is one of the most valuable skills an acquisition investor can develop.
A good business may temporarily suffer because customers postponed spending or input costs increased.
That can create an opportunity if conditions eventually normalise.
A structurally declining business is different.
Examples might include:
Experienced investors buy temporary problems carefully.
They avoid confusing those problems with permanent deterioration.
Periods of tighter credit generally reward buyers with strong balance sheets.
A buyer who can contribute more equity may be able to:
This does not mean buyers should avoid debt entirely.
Debt can improve returns when used responsibly.
The key is not to structure the acquisition so tightly that one bad quarter creates a crisis.
In a market where buyers and sellers disagree about valuation, vendor finance may help close the transaction. Instead of the buyer paying the entire amount at settlement, the seller may agree to receive part of the purchase price over time.
This can reduce the buyer's initial funding requirement. It can also demonstrate that the seller has confidence in the business.
However, vendor finance creates credit risk for the seller and should be documented properly with legal advice and appropriate security arrangements.
An earn-out can also bridge a valuation gap.
The seller may believe the business will produce $2 million of profit next year.
The buyer may believe $1.5 million is more realistic given economic conditions.
Rather than arguing indefinitely, part of the purchase price can potentially depend on the future performance of the business.
If the business performs as the seller predicts, the seller receives additional consideration.
If it does not, the buyer has not paid the full amount upfront.
Earn-outs can be effective, but they require careful drafting because disputes can arise over how earnings are calculated and how the buyer operates the business after settlement.
A business with a flexible cost base can adapt more easily to uncertain demand. Compare two businesses with the same profit. The first carries a large fixed payroll, substantial lease obligations and heavy debt.
The second can reduce inventory purchases, subcontract some work and adjust operating costs relatively quickly when demand changes. The second may have a stronger ability to survive a downturn.
When assessing an acquisition, separate fixed costs from variable costs and ask how quickly management can respond if revenue falls. When economic forecasting becomes difficult, revenue visibility becomes more valuable.
Businesses with...
...may give buyers greater confidence than businesses that need to win every dollar of revenue again each month. The important issue is the quality of that recurring revenue. Check contract duration, cancellation rights, customer retention, concentration and profitability. In uncertain periods, experienced buyers often favour businesses providing products and services that customers cannot easily postpone.
Examples may include:
No industry is recession-proof.
But there is a meaningful difference between something customers need and something customers merely want.
A business may have handled its debt comfortably when rates were low.
That does not mean it will remain comfortable at today's rates.
Review:
Also understand whether existing facilities remain available after a change of ownership.
The buyer may need to refinance the entire debt structure at current rates rather than inherit the seller's old facilities.
A business can be profitable and still consume enormous amounts of cash.
This is particularly common where the company must buy stock months before customers pay.
During uncertain times, working capital can become more difficult because:
A buyer should calculate not only the purchase price but the cash required to operate the company after settlement.
In a slowing economy, some customer debts may become harder to collect.
A $2 million debtor ledger is not worth $2 million if a significant amount is unlikely to be paid.
Review ageing carefully.
Look for:
It is not enough to analyse the business itself.
Analyse its customers.
A supplier may have very little debt but sell almost entirely to residential builders whose customers are highly interest-rate sensitive.
A manufacturer may have low direct fuel costs but sell to transport companies suffering severe diesel inflation.
Economic exposure can travel through the customer base.
The same applies upstream.
A business may appear financially strong but rely on a single overseas supplier operating through a disrupted shipping corridor.
Review:
Economic news can become overwhelming.
Interest rates are rising. Oil is above US$100. Bond yields are volatile. Housing prices are moving. Tax laws are changing.
But a buyer is not purchasing the Australian economy.
They are purchasing one business.
The most important questions remain remarkably practical:
The easiest time to buy a business emotionally is usually when the economic outlook looks perfect.
Unfortunately, that is often when everybody else wants to buy as well. Competition is greater, sellers are confident and valuations can become stretched.
Uncertain periods are different. Some buyers retreat. Some sellers become more realistic. Weak businesses are exposed, while strong businesses have an opportunity to prove their resilience. For a disciplined investor with access to capital, that can create opportunities that simply do not exist during easier conditions.
Buying an Australian business in 2027 will require a different mindset from buying during an era of cheap money and stable energy prices.
The RBA's interest rate increases have changed the economics of acquisition debt. The conflict involving the United States, Israel and Iran has increased energy and transport costs. Volatility in global bond markets has raised questions around the long-term cost of capital. And Australia's tax system is undergoing significant changes that investors need to understand before choosing how they structure and eventually exit an acquisition.
None of these factors mean investors should stop buying businesses.
They mean investors need to become more selective.
Buy businesses with strong cash flow, pricing power, sensible debt, diversified customers, capable management and a clear reason why customers will continue buying even when economic conditions are difficult.
Do not build the investment case around interest rates falling, fuel prices collapsing or economic growth returning quickly.
If those things happen, they should be upside.
The best acquisitions in uncertain times are businesses that do not require the uncertainty to disappear in order for the investment to work. Experienced buyers do not wait for perfect conditions. They buy good businesses at sensible prices, structure the debt conservatively and make sure there is enough margin for the world to remain unpredictable.
