The question of how to value a business is not an easy one to answer for many trucking company owners or investors.
Like many sectors, the trucking industry in Canada is going through significant change. Technological advancements, a shifting labour force, increased external competition, and a number of other market factors present both opportunities and challenges. Owners must now ask themselves—are they in, or are they out?
Whether investing or divesting, a credible business valuation is an essential first step in the process.
Why does a trucking company need a valuation?
Obtaining an accurate, realistic assessment of your trucking company’s worth can offer two key advantages.
For owners who plan to exit or retire, a valuation is a fundamental step in selling the business for a fair market price. For those who want to grow and invest, or simply aren’t ready to make their exit yet, a valuation is part of a smart business strategy. The process can help you identify strengths and weaknesses and enhance the company’s key value drivers for future growth.
What factors drive the worth of a trucking company?
A trucking company valuation is based on numerous factors, both tangible and intangible. A qualified valuations advisor can help assess a company’s financial history and unique elements. Owners should consider the following in particular:
For an investor, volatility means increased risk. Demonstrating a history of steady cash flow, stable margins, and consistent profit can put potential buyers at ease and help drive valuation multiples in your favour.
Non-recurring or personal items often impact a company’s financial statements and cloud the true operations of the business. Reducing the occurrence or normalizing for such items will provide a more accurate depiction of performance and operational efficiency.
Your vehicle fleet is a key value consideration for your trucking company, especially for asset-based carriers. Consider the age, composition, and size of the fleet. Older, less modern vehicles could mean an investor will have to spend more capital on maintenance or upgrades.
The fleet’s condition, historical maintenance costs, and number of idle vehicles are important considerations when entering the negotiation phase of a transaction. These factors can demonstrate the business’s ability to generate profit even under lean operations, or the potential for additional revenue through increased capacity.
Understanding the competitive differentiators and key performance indicators (KPIs) that make a business unique can help enhance a trucking company’s value.
Proprietary technology, a low percentage of empty miles, limited driver turnover, strong safety ratings, customer diversification, long-term contracts, and other factors can all contribute to a higher multiple. Company owners can use these factors to demonstrate operational efficiency and value for investors. Be prepared to address potential liabilities as well as KPIs.
What should business owners do next?
As a business owner, you get one shot at selling your company. To achieve the best possible deal, it’s crucial to have the right information and guidance to make a fully informed business decision. Trucking company owners should consider the following steps:
Owners who plan to sell or retire in the near term should obtain a valuation at least three to five years in advance. Even if retirement is still part of the distant future, knowing the true worth of your company is vital. Otherwise, company owners could find themselves accepting an unfavourable deal if life throws a curveball.
The last few years have seen a positive market and analysts predict that growth will continue. However, owners must stay aware of the external market factors that can affect the company’s value and competitiveness, such as developments in automation, increased consolidation, or a looming driver shortage, among others.
An experienced advisor can provide a realistic pricing target for your company. It’s important to strike the right balance—a price that is too low is disadvantageous, while one that is too high could deter potential buyers.
Understanding your company’s worth can help you increase operational efficiency and build on value drivers to improve revenue. When involved early in the process, a valuations consultant can help identify these drivers.
The investor perspective
A potential buyer relies on a number of factors when deciding whether they will invest in your trucking company and at what price. Some of the questions investors may ask themselves include:
- What is the risk appetite vs. the potential for improving operational efficiency and profit margins?
- What is the capacity of the fleet? How will it influence the scalability of the business?
- Does the company’s specialization or diversification lend itself to paying a premium multiple?
- Are there hidden liabilities that could influence company performance?
- What is the unique value of the company?
How BDO can help
BDO’s team of Chartered Business Valuators (CBV) has experience working with trucking and transportation companies across Canada. We work closely with our clients to understand what makes them unique and to provide an accurate, credible business valuation that can help them achieve their goals.
Contact us today to learn how we can help you.