Navigating the road to owning your first transportation business can be an up-hill climb, especially when it comes to pricing. The amount of capital you have available is certainly a factor, as is the cash flow you need. At the same time, you don’t want to ignore the aspects of a business that means it fits in with your long-term goals.
A business listed at the low end of your price range may seem like a safe bet, but the reinvestments required over time may end up making the deal less than desirable. Instead, a high-end listing may maximize the return you’ll receive on your investment. Regardless of which way you’re leaning, you’ll want to check out three categories of information: proper pricing, necessary earnings, and financing structure.
Even though transportation business owners know how to price their services, they may be rookies at pricing the transportation business itself. That being the case, you can’t assume that the asking price matches up to a professional valuation.
First-time sellers often assume the sale price of an apparently similar company to be a good guideline for pricing their own transportation business. However, the easily identifiable characteristics of a business aren’t the only factors that contribute to a valuation. Differences in customer base, legacy, and specific location can mean very different values.
The individual aspects of each company factor into the kind of professional valuation that leads to a fair price. The Tenney Group’s TransValuation is one such assessment, and it can help the buyer and the seller to arrive at a mutually agreeable price.
Once you’re confident of a fair asking price, you need to make sure that the business will pay. Of course, this issue is even more significant if you plan for your transportation business to provide your only source of income. You’ll need to determine the answers to the following key questions:
• Is the cash flow stable?
• Are the company’s projected earnings enough to pay your basic bills?
• Do you have enough cash reserves to keep yourself afloat if the first year is shaky?
• Do you have savings to cover unanticipated reinvestments, should problems arise?
Buying a business with excellent long-term potential may not be in your best interest if you can’t keep your head above water long enough to see it reach that potential.
Most of the funding for the purchase of a trucking business will typically come out of the buyer’s pocket. Of course, taking out a business loan is commonly needed when pockets don’t run deep enough. Traditional lenders and SBA goodwill financing can often provide the finances needed, but when they don’t, sellers may be willing to carry a note. Finding a suitable deal structure can heighten your ability to achieve your business ownership goals.
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