Trucking Company Valuation

Do you know how much your trucking company is worth? If you plan on growing your trucking company or retiring from freight movement altogether, a trucking company valuation can give you the bottom line number that you need.

A trucking company valuation, or business appraisal, is an independent review that translates your business into a fair market value. In the U.S., freight volume shipped by trucks is expected to grow by 50% over the next 20 years – during this time you’ll need to know exactly where your trucking company stands among the competition, and a trucking company valuation is the answer.[1]

The Basics of Trucking Company Valuations

Knowing exactly what your trucking company is worth is essential to helping you make major decisions in day-to-day business operations, serving as a valuable resource up to the time when you’re ready to retire. Knowing how to value a business is the first step of that process.

There are three basic valuation approaches that can be used for any appraisal; knowing them will help you understand how your trucking company valuation is prepared.

1. Asset Approach - The most common approach for a company valuation, this is used when a substantial amount of your value is derived from assets.
2. Income Approach – Analyzes your past and present income to predict the income a prospective buyer could expect to make in future years.
3. Market Approach - Comparing similar companies and how much they sold for to your business, this approach is only useful if there is enough data to calculate an accurate figure.

The trucking company valuation methodology used for your business will depend on factors unique to your operation, and there is no single valuation method that is better than the rest. For these reasons, it’s essential to have a professional experienced in how to value a business prepare your appraisal.

Key Success Factors in Trucking Company Valuation

With a nation on the road to economic recovery, and oil prices continually on the rise across the globe, the trucking industry has met with interesting challenges within the last five years. In 2010, the trucking industry suffered a revenue hit to the tune of 14.9%[2]%.2

Despite the challenges of the 2009 Recession, the difficult times have exposed key success factors and external business drivers of operating a successful trucking company.³

Success Factors

Keeping these factors in mind will help your business set itself apart from the competition and contribute positively to your company’s market value.

1. 1.       Long-Term Sales Contracts – Long-term contracts mean client stability. Transferring transportation providers can be costly for clients, and the best in the biz know to lock in long-term relationships with their customers.
2. 2.       Know Your Market – Know your marketing segments and clients through-and-through. This fundamental principle is essential for delivering optimal customer service and securing client relationships.
3. 3.       Quality Personnel Management – Experienced drivers and key operating personnel are what makes the wheels go ‘round. Don’t let this scarce commodity affect your business; take the time to invest in solid HR practices that keeps your employees happy.
4. 4.       Key Market Contacts – The key to a steady flow of work is to bridge gaps; make important connections between single operators within larger operators and tap into your network of freight forwarders.
5. 5.       Financial and Debt Management – Keeping a tight rein on your cash flow is essential for daily operations. It is critical that business owners see a birds-eye view over costs and revenue, and the factors that influence the company’s bottom line, like debt collection and overhead.
6. 6.       Fleet Management – Unstable fuel prices mean you need to cut unexpected costs wherever possible to compensate. Keep your fleets efficient by investing in vehicle monitoring systems.

External Drivers

Unpredictable market trends means that no industry is impervious to outside factors that challenge business success.

1. 1.       Logistics Outsourcing – With supplier chains widening and becoming more complex, it’s become popular to outsource transportation services as these businesses look to diversify and delegate their logistical needs. Many are turning to third-party firms to get the job done.
2. 2.       Global Crude Oil Cost – As crude oil price increases with daily international commodities trading the pain is felt all around the trucking industry whose sensitive bottom-line feel the pinch in price hikes.
3. 3.       Increased Demand from Retail – In line with economic recovery, the retail sector is expected to increase output. A positive downstream effect will see local trucking services experience an increase in service needs.
4. 4.       Increased Demand from Manufacturing – Along with retail trade, the manufacturing sector is expected to increase output as well. This market will be placing greater demand for freight movement.

Rules of Thumb for Trucking Company Valuations

Rules of thumb for trucking companies cast a wide net of ranges that place value on businesses across the industry.  These rules can give you a rough estimate of your business’ value, but should not be used as an official appraisal.

Rules of thumb work by taking a common factor that represents your business, like revenue, and then compares this factor to similar businesses in your industry.

If you’re interested in doing some quick calculations to determine how much your business is worth, consider these trucking company rules of thumb:

• 50 percent of annual sales
• 5 times EBIT
• 2 to 3 times EBITDA
• 1 to 1.5 times SDE + market value of assets
• $4,000 to $6,000 per driver

While they are effective, keep in mind that these rules pit your company up against every other competitor across the industry without considering the unique factors, such as safety awards or company size, which set you apart from everyone else.

Looking Forward

It’s about adaptability, and knowing who you are. When the U.S. economy tanked during the Recession of 2009, business owners – especially trucking company operators – learned hard lessons in the face of shrinking profits. Those willing to adapt their business plans to new needs survived, and those who knew their market, had solid client relationships, and knew their worth are still around today.

While our nation recovers from the Recession of 2009, consumers begin spending again, and markets surge forward in production, greater demands on the trucking industry will be made. But the playing field has shifted, and it’s up to business owners to respond quickly. Before you can play, however, you have to know your own strengths.

This is where a trucking company valuation is essential. Before you make any critical decisions, have your business valued by a professional. This move will put your company in a position of growth and help you secure the future of your business, and your personal finances, before you pass your keys off to your successor.

If you have specific questions you want to ask a valuation expert, then you can call (800) 895-4100 or learn more about a free business valuation consultation.