How to Value a Logistics Company | Business Worth
Learn more in this guide on how to value a logistics company. If you are a California transportation and trucking company owner looking for the best business valuation method to determine the value of your business, read on to learn the three most common business valuation approaches and what is best for you.
How to Value a Logistics Business
As you might expect, determining the market value of a logistics company can be quite complex since it involves analyzing the business’s assets, profits, revenue, and losses, the performance of the transportation industry, and so on.
Fortunately, there are many business valuation methods that can help you calculate how much your transportation and logistics business is worth. This will enable you to attract investors who are willing to purchase your trucking or logistics company for sale at a reasonable price.
Let’s take a look at the most common business valuation methods for trucking and logistics companies.
EBITDA Multiples For a Logistics Business
Also known as “earnings before interest, taxes, depreciation, and amortization,” EBITDA is the most preferred business valuation method by transportation business owners across California.
EBITDA business valuation method provides a raw picture of a trucking and logistics company’s net income before accounting for other factors that affect the business’s income, such as taxes, interest payments, and the depreciation of assets.
By excluding these factors from the equation, this business valuation method gives a clear perspective of your logistics business’s operational performance.
Discounted Cash Flow in Valuing a Logistics Company
The DCF business valuation method basically determines the value of a logistics business’s investment based on the money it can generate in the future. Many trucking or logistics company owners like this business valuation method because it perfectly captures a business’s intrinsic value, which is its underlying value based on its cash flow.
Book Value of a Trucking & Transportation Company
Book value is also a prevalent business valuation method for logistics companies. This valuation method determines the value of a business by subtracting the total value of its liabilities from the total value of its assets.
In valuing a haulage business, many owners prefer this business valuation method because its calculation of the value of the business is not pegged on its profitability. With this business valuation method, your trucking company’s selling price will be based more on the adjusted book value, the market value, than how much money it puts in the owners’ pockets.
EBITDA Calculations for Transportation Companies
Unlike other business valuation methods, EBITDA calculates the raw value of a logistics company based on its earnings before accounting for factors such as interest, taxes, depreciation, and amortization.
These factors manipulate a logistics business’s raw net income in many ways, therefore distorting the company’s actual value. For instance, the interest payments made to the business’s debtors may make it look less valuable than it actually is.
Normally, EBITDA multiples for trucking or logistics companies has two formulas for calculating a company’s value:
- EBITDA= operating profit+ depreciation+ amortization
- EBITDA= net income+ interest + taxes + depreciation + amortization
So what is the main advantage of using this method to determine the business value of your transportation and logistics company?
One of the reasons most business owners prefer this business valuation method is that it helps them determine their companies’ profitability.
As we mentioned earlier, EBITDA uses an income approach; it calculates a logistics business’s raw net income before accounting for its debt interest payments, taxes, depreciation of its assets, and amortization. By removing these factors from the equation, you will be able to determine the correct market value of your company.
How to Increase the Value of a Transportation or Logistics Company
Having a strategic plan on how to increase the value of your trucking or transportation company is important as it enables you to stand out from your competitors, attracting more potential buyers to your company. Let’s take a look at how you can increase the value of your trucking or logistics company (and how to bag top-notch investors to buy your business)
Work on Increasing Your Company’s Cash Flow
One of the main things that can attract investors to purchase your logistics or transportation company is a positive cash flow.
Having a positive cash flow means that your company’s incoming finances are increasing, enabling you to pay for expenses and still reinvest in your business. In simple terms, a positive cash flow means that the money that flows into your business is more than the cash that flows out of it.
Here are a few ways to increase your trucking company’s cash flow.
Send Invoices to Your Customers on Time
Ensuring that you send invoices to your customers as soon as possible ensures that you get paid on time, therefore increasing the money that flows into your company.
Strategically Increase the Prices of Your Services
Another effective way of increasing the cash flow of your trucking company is by increasing the prices of your services.
There are many factors that you have to keep in mind when increasing the prices of your services. These include the service prices of your competitors, the cost of equipment and manpower, and the time and effort put into providing these transportation and trucking services.
These factors will help you strike the perfect balance between having competitive prices that attract customers and making more profit.
Manage Your Trucking and Transportation Business’s Expenses
Establishing strategies on how to manage your trucking company’s expenses goes a long way in improving its cash flow and maximizing profits.
One of the main ways to reduce your logistics company’s expenses is by minimizing its financial expenditures. This includes avoiding any unnecessary debts that may affect your business’s cash flow and overall market value. You could also go for affordable insurance policies that will not make a dent in your company’s cash flow.
Improve Your Logistics Company’s Brand
Although a lot of entrepreneurs don’t put much thought into it, investing in branding is a great way to increase your logistics business’s value. But don’t get things wrong. Branding a business is not just about crafting a logo and dipping your hand into the color chat.
You should definitely give your logo some thought but building a brand is much more than that. You must work on your messaging and tone. Identify a tone and the feeling you want customers to identify you with and consistently display it in all communications.
Increasing your brand awareness makes it easier for people to resonate with your messages. This could go a long way in building solid customer relationships.
What’s more, creating a reputable brand enables you to earn the trust of new customers. A strong brand shows potential customers that you can deliver on your promises. It also gives them a glimpse of what to expect from your trucking business.
Branding also gives you an opportunity to connect with your customers at a more intimate level. Having a brand that consumers can relate to attracts them to your services and can eventually turn them into loyal customers.
Why You Should Hire a Logistics Business Broker When Valuing Your Transportation Company
Business brokers do a lot more than help entrepreneurs sell their businesses. Hiring a certified business intermediary firm also helps you determine the correct market value of your company, enabling you to sell your business for the ideal price.
Let’s look at some of the ways a business broker can help you determine the value of your trucking and logistics company.
A Business Broker Thoroughly Analyzes Your Business to Determine the Ideal Business Company Valuation Method
Knowing how important it is to figure out the correct market value of your company, a business intermediary analyzes all the factors that may affect your company’s value. By doing so, they will be able to determine the most suitable business valuation method for your trucking company that does not distort its actual value.
A Business Intermediary Puts Together All the Documents Needed for the Business Valuation Process
After analyzing your trucking and logistics company from all angles, a business broker helps you gather all vital documents such as the financial statements. These documents are quite critical as they serve as evidence of your business’s projected value when negotiating with an investor.
A Right Broker Helps You Come Up With the Ideal Listing Price for Your Business
Among the most important things that will help you successfully sell your trucking company is a suitable listing price. A qualified broker helps you come up with the ideal listing price that is attractive to potential buyers and still captures the correct market value of your logistics company.
Calculating the value of your logistics business not only helps you know its current value but also helps you assess its performance in multiple areas. This helps you develop strategies to improve your company’s overall value, enabling you to sell it at a reasonable price.
There’s a lot that goes into calculating the value of a logistics company, and arriving at the right figure might not be easy. Hiring the services of a certified brokerage firm ensures that the entire process is hassle-free and that you figure out the true value of your business based on the most relevant factors.