CLA Outlook: Navigating 2025 with Optimism

  • Economy and capital markets
  • 1/20/2025
Business woman study financial market

Key insights

  • The financial landscape is rapidly evolving, driven by robust private markets and influential consumer behaviors, reshaping the economic environment.
  • The strength of the consumer sector is a critical factor in the current economic evolution. Consumer spending remains robust, supported by high incomes and wealth transfers.
  • Developing a business exit plan that incorporates estate planning, tax strategies, and philanthropic goals can help address emotional and financial challenges and facilitate a smooth transition.

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Privately held businesses — which constitute most companies in the United States — are experiencing increased activity and consolidation efforts, largely driven by private equity. This shift is creating synergies enhancing production, distribution, and marketing efficiencies.

Explore how these dynamics shape the broader economic landscape as we assess the economic trends of 2025 amid evolving market conditions.

 

The role of consumer influence

Despite uncertainties, the market continues to show robust growth patterns, driven significantly by private equity activities and consumer spending.

The strength of the consumer sector is a critical factor in the current economic evolution. Consumer spending remains robust, supported by high incomes and wealth transfers, such as the anticipated generational wealth shift from Baby Boomers to millennials.

Consumer strength propels GDP growth, which now stands at a year-over-year rate of 2.8%, well above the long-term average of 2%. (Source: Fred)

For businesses, understanding consumer behavior informs strategic decisions around product development, marketing, and sales strategies. Companies can leverage this knowledge to align offerings with consumer demand, enhancing market position and driving growth.

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Businesses adapting to economic changes

A key driver of earnings growth is margin expansion. Companies are achieving this through strategic cost management and operational efficiencies, particularly in response to economic pressures like inflation.

In today’s economic climate, businesses must adapt to ongoing changes to sustain growth. This involves leveraging technology, enhancing operations, and exploring new markets. The retail sector, for example, has embraced consolidation and franchising models to achieve economies of scale and meet evolving consumer preferences for online and fast delivery services.

Companies investing in AI and other advanced technologies are witnessing improvements in efficiency and cost management. An innovation focus helps expand profit margins, even in the face of slowing revenue growth.

By adopting flexible strategies, companies can mitigate risks associated with economic fluctuations and capitalize on emerging opportunities.

Margin expansion amid economic slowdown

Despite expectations of an economic slowdown, businesses are experiencing robust earnings growth, primarily driven by margin expansion rather than top-line revenue growth. Businesses focusing on margin expansion can sustain earnings growth even when external economic conditions are less favorable.

Your organization can prepare for potential economic slowdowns by maintaining strong balance sheets and adopting conservative financial practices. This involves prudent cash management and strategic investments in productivity-enhancing technologies. By building resilience through financial discipline and strategic foresight, businesses can navigate challenging periods without compromising growth trajectories.

 

Planning for post-sale wealth management

Following a business sale, investing capital effectively is essential to sustaining and growing wealth. This involves diversification across asset classes, including equities, bonds, and alternatives, tailored to the individual’s risk tolerance and financial goals.

  • Equity and bond diversification — Balancing investments across equities, bonds, and alternatives ensures a resilient portfolio.
  • Estate and gifting planningEffective tax strategies can preserve wealth for future generations.
  • Portfolio rebalancing — Regularly adjusting investments to align with market conditions and personal goals is vital.

Addressing emotional and financial challenges

The process of exiting a business can be an emotional whirlwind, compounded by the financial strain of securing fair valuations, managing debts, and supporting the continuity of employees’ livelihoods.

Addressing these challenges proactively can help you focus on your new financial reality and opportunities, allowing your wealth to continue supporting your lifestyle and legacy goals.

Develop a plan incorporating estate planning, tax strategies, and philanthropic goals to help address these challenges and facilitate a smooth transition for all stakeholders.

 

How CLA can help with financial planning

The strength of the consumer market, coupled with strategic business adaptations and consolidation, sets the stage for continued growth. With strategic capital management and a focus on innovation, businesses can not only navigate but thrive in this complex economic terrain.

If you want to explore specific topics, access multiple disciplines of skills and proficiencies, or discover resources for your organization or yourself, please reach out.

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