Before listing your business for sale, you need to determine its market value and an appropriate asking price. There are several methods for valuing a business, but most transportation business owners and buyers will look to the market and recent similar sales to benchmark a new listings value. This market-based approach establishes a competitive and fair asking price and helps to eliminate any biases you may have developed after years of building the business.
An effective way to determine a company's value compared to similar businesses in the industry is to use pricing multiples. By collecting and aggregating financial data on sales of similar businesses, we can derive multiples to be used to benchmark new businesses entering the market for sale.
The metrics used to calculate multiples are earnings (cash flow) and revenue (gross sales). For transportation businesses with earnings under $1 million, seller's discretionary earnings(SDE) is the best cash flow metric to use.
While transportation business valuations fall within a certain range, the value of each individual business is unique and depends on several factors. Whether your business provides transportation of passengers or cargo, valuations consider the local market, current financials, potential earnings, as well as business operation characteristics.
|
Business |
Average Earnings Multiple |
Average Revenue Multiple |
|
All Transportation Businesses |
2.06 |
0.63 |
|
Limo and Passenger Transportation Businesses |
2.39 |
0.71 |
|
Moving and Shipping Businesses |
2.55 |
0.93 |
|
Delivery Routes |
1.89 |
0.97 |
|
Trucking Companies |
2.97 |
0.64 |
|
All Other Transportation Businesses |
2.53 |
0.72 |
For transportation businesses, the average cash flow multiple is 2.06, but most businesses fall within a range of 1.75–3.0. The average is brought down by the large volume of delivery routes that are bought and sold at much lower earnings multiples. The wide range highlights how local market trends and distinctive business operations can affect valuation and sales price.
Cash flow multiples are the go-to metric when it comes to making decisions about buying a transportation business, since buyers are searching for the bottom-line return on investment. Even so, it can be helpful to look at top-line revenue multiples to gain insight into the profit margins of sold businesses to see how your business measures up. Transportation business revenue multiples typically range from about 0.6 to 0.9, with the average at 0.77.
Getting the market value of your business will require auditable financial documents that will hold up to the scrutiny of due diligence. You will need the following types of financial documents for the past three years: profit and loss statements, balance sheets, and corroborating tax returns. Include current year statements and be able to provide copies of financial details for current projects and any forecasts. Consult an accountant to help you put together an SDE that shows how much your business makes after adding back non-recurring and discretionary expenses. This financial information is vital for establishing a realistic and competitive asking price for your business.
To maximize the value of your business, it's important to have trusted, experienced advisors to help you value and sell your transportation company. As the owner, you have a unique insight into the strengths and opportunities of your business, but selling it requires an objective view and some unique skill sets. An accountant, attorney, and business broker (or any combination of the three) bring distinct skills necessary to get the most value for your business and ensure a smooth transaction.
An experienced business acquisition attorney will navigate the legal aspects of selling your business and will protect your interests throughout the process. They will draft non-disclosure agreements, negotiate, and draft the buy-sell agreement. They will also handle the legal documents necessary to transfer ownership and provide legal counsel throughout the process.
Once you've gathered financial records going back three years, enlist the help of a trusted accountant. Accountants will organize your financial documents and act as a financial advisor by providing objective valuations. During the due diligence phase, potential buyers will scrutinize your financials, so having a CPA on your team to ensure their accuracy, and to field questions, is essential.
Selling a business requires a specialized and unique skill set. No one is better suited to the task than a broker experienced in your market and industry. Business brokers act as intermediaries throughout the process of selling your business. They offer a range of services, from market valuation and pricing analysis to strategic guidance and advice for finding the right buyers and maximizing value. Select a broker with knowledge of the transportation industry, as they can offer specific insights into market trends and potential buyers. Brokers typically work on commission, with fees ranging from 10 to 15% of the final sale price.
Whether you plan to sell to a trusted business partner, a family member, or on the open market, it's important to develop an exit strategy. Your ultimate goal should be to have your business running efficiently with as little daily intervention from you as possible. Ideally, you'll want three years before listing a business for sale to develop an exit plan. This lead time allows you to prepare and establish the business's value, optimize daily operations, organize financial records, and assemble a management team.
Many factors influence the timeline for selling a transportation business—expect the process to last between six months and a year. For business sales, the average days on the market in 2023 were 130 days. Last year saw 707 transportation businesses sold on BizBuySell. Key factors to consider when assessing how long selling your business might take include the sale price, cash flow, and geographic market served. The transportation sector is particularly susceptible to energy costs that are connected and responsive to geopolitical events and government regulations. Weighing internal and external factors is important when considering when to sell your business.
Once you've determined the value of your company, assembled a team of experts, and created an exit plan, it's time to prepare your transportation business for sale. In addition to gathering all relevant information and paperwork, you need to identify individuals who can take over the daily management of the business. Make time to provide additional training to team members if necessary and create manuals that document all processes and procedures. It's important to get your business running without the daily intervention of its owner to ensure a smooth and successful transition.
When preparing to exit your business, make time to identify areas that need improvement. You can increase the value and improve your chance of a successful sale by analyzing and optimizing your business.
|
Improves Price Multiple |
Reduces Price Multiple |
|
Reliable and well-documented operation: organized financials, detailed operating procedures, comprehensive vendor policies, permits that transfer with sale, etc. |
Obscure operation: Complicated or non-existent bookkeeping, unreliable vendor relationships, undocumented agreements, permits lacking, etc. |
|
Operations management in place. Ideally owner focuses on high-level strategy, not daily operations. |
Owner manages daily operations — owners too connected to the day-to-day operations impact value. |
|
Revenue generated from multiple sources of services, customers, and industries. |
High customer concentration - overly reliant on a small group of customers. |
|
Efficient technology infrastructure. |
Outdated, obsolete, or complicated technology infrastructure. |
|
Experienced and tenured employees who are likely to stay after the sale. |
High-churn employee base - or mostly new employees with little incentive to stay on through transition. |
|
Long-term contracts and recurring, reliable revenue. |
High customer churn necessitating spend on customer acquisition. |
|
Seller financing: Business owners willing to finance a portion of the sale can often receive higher prices. |
Cash only: Sellers who insist on all cash will usually have to accept a lower offer and may receive fewer offers to consider. |
|
Nimble operations able to navigate fluctuations in fuel price and government regulations. |
Rigid operations easily challenged by fluctuations in fuel price and government regulations. |
To find the right buyers for your transportation business, you need a marketing strategy to attract interested parties with the intent to purchase.
Keeping the sale confidential is standard and helps to keep business operations running smoothly while preserving value. Of course, there are exceptions, such as for well-known and respected businesses where publicity may be beneficial. There may be value in letting trusted business associates and competitors know of your intention to sell the business. Those already involved in your industry may value your business more than unknown parties.
An effective marketing strategy may include local ads and confidential direct inquiries to trusted business associates. Since most business buyers will turn to the internet to search for business acquisition opportunities, you will want to create listings on the largest online marketplaces, like BizBuySell and BizQuest.
If you choose to work with a business broker, they will develop the marketing strategy, but you should be deeply involved and aware of every marketing avenue and how they are performing.
The last steps when selling a transportation business come down to negotiating the terms and closing the deal. It's important to keep your emotions in check, whether you're selling your business on your own or using a broker. Many owners choose to go the For Sale By Owner route, and you can seek objective input from your accountant or attorney. Otherwise, your business broker is the best person to rely on for advice during the negotiation process.
Boost your negotiating power by having a clear understanding of the various financing options available to buy a business. Between seller financing and pre-qualifying for an SBA loan, there are many financing options available that can help to attract a greater number of potential buyers.
When the last details of the agreement are settled, it's time to complete the deal. Review the checklist the BizBuySell team put together to guide you through the process of transferring the business to the new owner.
When it comes to selling a transportation businesses, simplify the process by taking the time to understand the value of your business and how the business-for-sale market operates. This will allow you to put a process into place that will attract the best opportunities.
Download our free Guide to Selling your Small Business and get information and advice to sell your transportation business successfully and with confidence.
