How to Sell a Trucking Company - Prepare, Value, and More
You probably want to retire or move on to other things. Perhaps you’re burned out. Whatever your reasons, you’re eagerly researching how to sell a trucking company.
Well, you are in luck! Our guide today explores how you can easily sell your trucking business for the highest possible sale price.
TL;DR - How to Sell a Transportation Company
Here are the steps to follow to complete a trucking business sale. We’ll dig deeper into each step in the following sections.
Get in the right mindset
Determine the value of your company
Hire experts
Prepare detailed financial documents
Increase the value or sellability of your business
Market your company to potential buyers
Negotiate favorable sales terms
Participate in two-way due diligence
Finalize the sale and transfer
Ensure a smooth transition.
Since all these steps can be intimidating on your own, you can consult with us today to help you streamline the process.
At Exitwise, we help you hire a dream team of industry-specific M&A experts, including tax accountants, M&A attorneys, wealth managers, and investment bankers, to help you sell your business under the most favorable terms.
10 Steps to Prepare a Trucking Company for Sale
Let's discuss these 10 steps in detail:
1. Get in the Right Mindset
You must first be in the right mindset for the sale to happen easily.
Consider these three things:
Understand your reasons to sell: Be absolutely sure you want to sell your company. It's not always easy to let go.
Determine the best time to sell: The best times include when you’re ready for new opportunities, revenues are at an all-time high, or right before a significant market shift. Maybe you have received an irresistible purchase offer.
Determine what to do with the sale proceeds: While this may seem mundane, decide first what to do with the money from the sale to avoid misappropriation.
2. Determine the Value of Your Transportation Company
There are three common methods you can use to value your business:
Market Approach
If you analyze the past market transactions of similar trucking companies, you'll get a basis for your own valuation.
The limitation here is that you may not have access to ample market transaction multiples because most privately owned trucking companies do not disclose them.
However, if you’re a public company, you can easily access these multiples because public companies usually involve publicized M&A activity where the multiples are disclosed.
Cost-based Valuation
The cost-based approach considers all the costs of creating the company and buying past and current tangible assets, as well as the value of intangible assets.
The method determines how much it would cost to grow an exact company like yours from the ground up.
Asset Approach
The asset approach shows the net value of a business’s assets minus the market value of all its liabilities.
In this approach, use the market value of the equipment you have, and remember that your company's value will typically be based on the income generated by your assets.
Also, remember to factor in your goodwill or intangible value, which helps increase your company's value above its asset value.
EBITDA Multiples
According to a report by First Page Sage, the current average EBITDA multiples range for trucking companies is 6x - 8x.
The EBITDA approach applies an industry multiple to a business’ EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
To calculate your EBITDA multiple, divide your company's enterprise value by its EBITDA. The enterprise value is your company's market capitalization plus its total debt minus its cash and cash equivalents.
EBITDA = Net income + Interest + Taxes + Depreciation + Amortization
Enterprise Value = Market Capitalization + Total Debt - (Cash + Cash Equivalents)
EBITDA Multiple = Enterprise Value/EBITDA
Your trucking company's value = EBITDA x the multiple.
At Exitwise, we understand that doing these valuations yourself can be overwhelming. Our online valuation tool can help you understand your company’s value in real time.
3. Hire M&A Experts
The right M&A team will help you market your business, vet potential buyers, finalize the sale agreement, and ensure a smooth transition.
We can help you interview, hire, and manage an all-round M&A team comprising wealth advisors, investment bankers, accountants, and attorneys. Here's how Exitwise works to ensure a successful sale.
4. Prepare Detailed Financial Documents
You'll need to get your financial house in order and prepare various financial documents showing how much your business makes and how much a buyer can expect to make.
5. Increase the Value or Sellability of Your Business
You'll want to improve your business to make it more appealing to the buyer. One quick way to increase the value is to diversify your income sources.
6. Market Your Company to Potential Buyers
Your M&A team helps you market your business to the right pool of potential buyers.
If you would like to help, market your business online on social media and trucking forums.
Networking events are also a great way to market the business in person.
7. Negotiate Favorable Sales Terms
After finding a favorable buyer, negotiate an attractive sale price and payment process.
You can reasonably compromise on some aspects, but you should also let the buyer know if there are others you can't compromise.
8. Participate in Two-way Due Diligence
Your potential buyer signs a non-disclosure agreement once you’ve agreed on favorable terms and they carry out their due diligence.
Due diligence involves reviewing the records you’ve provided to ensure your business is operating as indicated. Your part is to answer questions and address concerns the buyer may have.
9. Finalize the Sale and Transfer
After the buyer is satisfied, close the sale and have them pay using the agreed procedure.
Be sure to provide the buyer with all the legal paperwork and transfer your assets to them.
10. Ensure a Smooth Transition
The sell side often overlooks the transition period. It's prudent to do your best to ensure the new owner settles smoothly into the business.
What Financial Documents Should I Prepare Before Selling My Trucking Company?
You should prepare the following financial documents and information when selling your company:
Income statements
List of equipment, such as trucks and trailers
Tax returns for the last 3 years
Balance sheets
Current agreements and contracts
EBITDA
Cash flow systems
Credit statements
List of clients
What Are the Legal Considerations When Selling a Trucking Company?
Potential buyers will want to ascertain that your trucking business is legally healthy as advertised.
Prepare the following legal declarations:
Taxes and tax returns
Company bylaws
Partnership agreements
Privacy agreements
Meeting minutes
Ongoing legal proceedings, if any
Contracts with clients, employees, and suppliers
Intellectual property records, such as trademarks
Existing leases.
How to Value a Trucking Company
You can use different methods to value your trucking company and find out which one most favors you. If you use the EBITDA multiple approach, your valuation will hypothetically take the form below.
Company value = EBITDA x Multiple
EBITDA multiple = Company Value/EBITDA
Company EBITDA = $5.5M
Market capitalization = $50M
Total debt = $1.5M
Cash and cash equivalents = $0.4M
Your company value = $50M + $1.5M - $0.4M = $51.1M (Market cap + Total debt - cash)
EBITDA multiple = $51.1M/$5.5M = 9.29
Company value = $5.5M x 9.29 = $51,095,000
How Much Can I Sell My Trucking Company for?
The amount you sell your trucking company for depends on various factors, as highlighted in the next section.
Going by the example above, you could sell your company for $51,095,000 if your EBITDA is $5.5M and the EBITDA multiple is 9.29.
Remember that this is a hypothetical case, and the actual EBITDA multiples for privately held trucking businesses currently range between 6x and 8x.
Assuming a multiple of 6, the business above could sell for $33M ($5.5M EBITDA times 6).
Factors That Affect the Sale Price
The sale price of your trucking company depends on factors such as:
Business location: The sale price goes up if your business operates in a busy hub or serves a busy city.
Assets worth: Both tangible and intangible assets will drive the sale price higher, especially considering how much revenue they generate.
Condition of the trucking fleet: Your trucks should be in top-notch condition, including fuel efficiency.
Prevailing market conditions: If the market is generally in a slump, your sale price will be lower.
Historical earnings and finance trends: What has your business been earning? What’s the general direction of its finances? Can you control costs while increasing sales? Can you lower long-term liabilities? How strong is your credit history?
How much your business revolves around you: Your buyer will want to know if your business can sustain its profits after you exit as the owner or founder.
Growth potential: Your business should have growth potential, such as expanding its customer base.
Legal history: A tumultuous legal history may lower the sale price.
Client base: The more clients you serve and the revenue you get from them, the higher your sale price goes.
Brand recognition and reputation: If you’re a reputable brand, your sale price will be higher.
10 Ways to Enhance the Value of Your Transportation Business
Here are 10 ways to increase the value of your trucking business:
1. Invest in well-maintained equipment, such as vehicles, repair tools, and computers.
2. Expand your customer base to increase revenue.
3. Enhance customer relationships and vendor partnerships.
4. Embrace new technology, such as electric vehicles and the Internet of Things.
5. Use systems that maintain optimal standard operating procedures without the owner's daily involvement.
6. Pay off as much debt as you can.
7. Develop a strong management team.
8. Reduce your operational costs, for example, by cutting off excess or underemployed staff.
9. Set systems for a smooth transition, such as specific employees working directly with the new owner until they settle in.
10. Amicably resolve any outstanding legal battles.
How to Sell a Transportation Company
When selling your transportation company, be sure to execute the following steps:
Hire an M&A team to help you value the business
Prepare all the necessary financial documents
Make your business more valuable or appealing to the buyer
Market the company with the help of the M&A team
Negotiate a favorable sale price
Address concerns raised by the buy-side due diligence
Receive your payment, transfer the business, and help the new owner transition easily.
If the sale process turns out a bit complicated, contact us now for help with hiring and managing the dream M&A team that will maximize your sale price.
Frequently Asked Questions (FAQs)
Check out these answers to common questions when selling a trucking company.
How Do I Find the Right Buyer for My Trucking Company?
While you can market your trucking company yourself, you can find an even better buyer if you let your M&A team market it to their extensive database of potential buyers.
How Do I Negotiate the Sale of My Trucking Company Effectively?
It's best to leave the sale price negotiation to your M&A team but with a detailed list of the areas you’re willing to negotiate and the ones you can't go back on.
What Post-Sale Obligations Might I Have After Selling My Trucking Company?
It's prudent to help the new owner settle into the company easily.
You can help with this in the following ways:
Provide the necessary support and training to the buyer
Help with transferring licenses, contracts, leases, or permits
Share your operation manuals for different company processes
Embrace open collaboration and communication.
Conclusion
By now, you’ve learned how to sell a trucking company, right from valuing it to marketing it to the right potential buyers and closing the sale.
Since it's a complex process, it's advisable to hire experts to help you.
You can connect with us today to help you find, hire, and manage an awesome M&A team to sell your transportation business under the best possible terms.
