3 Methods: How to Value a Trucking Company

This guide is on how to value a trucking company in the lower middle market segment. If you are a California transportation and logistics company owner looking for the best business valuation method to determine the value of your business, read on to learn the three most common business valuation approaches and what is best for you.

How to Value a Trucking Business

As you might expect, determining the market value of a trucking company can be quite complex since it involves analyzing the business's assets, profits, revenue, and losses, the performance of the transportation industry, and so on.

Fortunately, there are many business valuation methods that can help you calculate how much your trucking business is worth. This will enable you to attract investors who are willing to purchase your trucking company for sale at a reasonable price.

Let's take a look at the most common business valuation methods for trucking companies in California.

EBITDA Multiples Business Valuation Method

Also known as "earnings before interest, taxes, depreciation, and amortization," EBITDA is the most preferred business valuation method by trucking business owners across California.

EBITDA business valuation method provides a raw picture of a trucking company's net income before accounting for other factors that affect the business's income, such as taxes, interest payments, and the depreciation of assets.

By excluding these factors from the equation, this business valuation method gives a clear perspective of your trucking business's operational performance.

Discounted Cash Flow Valuation Method

The DCF business valuation method basically determines the value of a trucking business's investment based on the money it can generate in the future. Many trucking company owners like this business valuation method because it perfectly captures a business's intrinsic value, which is its underlying value based on its cash flow.

Book Value Business Valuation Method

Book value is also a prevalent business valuation method for trucking companies. This valuation method determines the value of a business by subtracting the total value of its liabilities from the total value of its assets.

In valuing a haulage business, many owners prefer this business valuation method because its calculation of the value of the business is not pegged on its profitability. With this business valuation method, your trucking company's selling price will be based more on the adjusted book value, the market value, than how much money it puts in the owners' pockets.

Why EBITDA Is the Best Business Valuation Method for Trucking Companies

Unlike other business valuation methods, EBITDA calculates the raw value of a trucking company based on its earnings before accounting for factors such as interest, taxes, depreciation, and amortization.

These factors manipulate a trucking business's raw net income in many ways, therefore distorting the company's actual value. For instance, the interest payments made to the business's debtors may make it look less valuable than it actually is.

Normally, EBITDA multiples for trucking companies has two formulas for calculating a company’s value:

• EBITDA= operating profit+ depreciation+ amortization
•  EBITDA= net income+ interest + taxes + depreciation + amortization

So what is the main advantage of using this method to determine the business value of your trucking company?

One of the reasons most entrepreneurs prefer this business valuation method is that it helps them determine their companies' profitability.

As we mentioned earlier, EBITDA uses an income approach; it calculates a trucking business's raw net income before accounting for its debt interest payments, taxes, depreciation of its assets, and amortization. By removing these factors from the equation, you will be able to determine the correct market value of your company.

How to Increase the Value of a Trucking Company

Having a strategic plan on how to increase the value of your trucking company in California is important as it enables you to stand out from your competitors, attracting more potential qualified buyers to your company. Let's take a look at how you can increase the value of your trucking company (and how to bag top-notch investors to buy your business)

• Work on Increasing Your Company's Cash Flow

One of the main things that can attract investors to purchase your trucking company is a positive cash flow. Having a positive cash flow means that your company's incoming finances are increasing, enabling you to pay for expenses and still reinvest in your business. In simple terms, a positive cash flow means that the money that flows into your business is more than the cash that flows out of it.

Here are a few ways to increase your trucking company's cash flow.

Send Invoices to Your Customers on Time

Ensuring that you send invoices to your customers as soon as possible ensures that you get paid on time, therefore increasing the money that flows into your company.

Strategically Increase the Prices of Your Services

Another effective way of increasing the cash flow of your trucking company is by increasing the prices of your services.

There are many factors that you have to keep in mind when increasing the prices of your services. These include the service prices of your competitors, the cost of equipment and manpower, and the time and effort put into providing these transportation services.

These factors will help you strike the perfect balance between having competitive prices that attract customers and making more profit.

• Manage Your Trucking Business's Expenses

Establishing strategies on how to manage your trucking company's expenses goes a long way in improving its cash flow and maximizing profits.

One of the main ways to reduce your trucking company's expenses is by minimizing its financial expenditures.

This includes avoiding any unnecessary debts that may affect your business's cash flow and overall market value. You could also go for affordable insurance policies that will not make a dent in your company's cash flow.

• Improve Your Trucking Company's Brand

Although a lot of entrepreneurs don't put much thought into it, investing in branding is a great way to increase your trucking business's value. But don't get things wrong. Branding a business in the lower middle-market is not just about crafting a logo and dipping your hand into the color chat. You should definitely give your logo some thought but building a brand is much more than that.

You must work on your messaging and tone. Identify a tone and the feeling you want customers to identify you with and consistently display it in all communications.

Increasing your brand awareness makes it easier for people to resonate with your messages. This could go a long way in building solid customer relationships.

What's more, creating a reputable brand enables you to earn the trust of new customers. A strong brand shows potential customers that you can deliver on your promises. It also gives them a glimpse of what to expect from your mid-market trucking business.

Branding also gives you an opportunity to connect with your customers at a more intimate level. Having a brand that consumers can relate to attracts them to your services and can eventually turn them into loyal customers.

Why You Should Hire a Transportation and Logistics M&A Broker When Valuing Your Trucking Company

M&A brokers do a lot more than help entrepreneurs sell their businesses. Hiring a certified M&A advisory firm also helps you determine the correct market value of your company, enabling you to sell your business for the ideal price. If it happens you are considering to sell your business in Australia, there are many options to consider.

Let's look at some of the ways an M&A broker can help you determine the value of your trucking company in the lower middle-market business segment.

An M&A Broker Thoroughly Analyzes Your Business to Determine the Ideal Business Company Valuation Method

Knowing how important it is to figure out the correct market value of your company, an M&A broker analyzes all the factors that may affect your company's value. By doing so, they will be able to determine the most suitable business valuation method for your trucking company that does not distort its actual value.

An M&A Advisor Puts Together All the Documents Needed for the Business Valuation Process

After analyzing your trucking company from all angles, an M&A advisor helps you gather all vital documents such as the financial statements. These documents are quite critical as they serve as evidence of your business's projected value when negotiating with an investor.

An M&A Broker Helps You Come Up With the Ideal Listing Price for Your Business

Among the most important things that will help you successfully sell your trucking company is a suitable listing price. An M&A transportation business broker helps you come up with the ideal listing price that is attractive to potential buyers and still captures the correct market value of your trucking company.

Conclusion

Calculating the value of your trucking business in the lower middle-market business segment not only helps you know its current value but also helps you assess its performance in multiple areas. This helps you develop strategies to improve your company's overall value, enabling you to sell it at a reasonable price.

There's a lot that goes into calculating the value of a trucking company, and arriving at the right figure might not be easy. Hiring the services of a certified M&A advisory firm ensures that the entire process is hassle-free and that you figure out the true value of your business based on the most relevant factors.

If you are a retiring business owner looking to exit your lower middle market trucking business in California, here are six tips to get you started:

1. Don't wait until the last minute to start planning your exit. The process of selling a lower middle market trucking business can take a long time, so it's important to start early.

2. Have a clear idea of what you want to get out of the sale. Know your goals and what you're willing to negotiate.

3.  Know what's your company's worth. This is an essential step to take when planning to sell your trucking and logistics business company in California.

4. Choose the right type of buyer. Not all buyers are created equal, so do your research and find the right one for your business.

5. Be prepared for a lot of due diligence. M&A buy-side due diligence is when buyers will want to know everything about your business, so be ready to provide documentation and answer questions.

6. Be flexible with the terms and conditions of the deal. It's important to be open to  negotiation to get the best possible deal for your business.

Rogerson Business Services, also known as, California's lower middle market business broker is a sell-side M&A advisory firm that has closed hundreds of lower middle-market deals in California. We are dedicated to helping our clients maximize value and achieve their desired outcomes. 

We have a deep understanding of the Californian market and an extensive network of buyers, which allows us to get the best possible price for our clients. We also provide comprehensive support throughout the entire process, from initial valuation to post-closing integration. 

Our hands-on approach and commitment to our client's success set us apart from other firms in the industry. If you consider selling your lower middle market transportation business, we would be honored to help you navigate the process and realize your goals.

If you have decided to value and then sell your lower middle market transportation and trucking company or still not ready, get started here, or call toll-free 1-844-414-9600 and leave a voice message with your question and get it answered within 24 hours. The deal team is spearheaded by Andrew Rogerson, Certified M&A Advisor, he will personally review and understand your pain point/s and prioritize your inquiry with Rogerson Business Services, RBS Advisor

Go to the next article: Part of a guide to help sell transportation and trucking company in California series ->

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