Article
What to consider when estimating the value of your trucking business
June 19, 2023 · Authored by Terry Dickens, Jesse Proctor, Hans Galland of BeyondTrucks
A version of this article was originally published in Beyond Trucks in February 2023.
The 1980 Motor Carrier Act signed into law by President Richard Nixon marked the beginning of the deregulation of the interstate transportation industry. This deregulation brought significant entrepreneurial opportunities for trucking companies founded in the 1980s and 1990s.
Some trucking companies founded during this era have become sizable, family owned businesses. Their founders, many of which are still actively involved in the day-to-day operations, are assessing their transition alternatives, balancing their personal financial needs, and protecting their legacy.
This article is part of a series which will also cover:
Overview of business valuations
During succession planning, estimating the value of a trucking business is a critical exercise. Owners need to understand the rationale and drivers behind value to prepare their company for a sale or handover.
Company appraisers use a variety of valuation techniques to arrive at the fair market value (FMV) of a company, which is the price a willing buyer would pay to a willing seller for a trucking company, with both parties having reasonable knowledge of the relevant facts.
Before you sell
In preparing a company for sale, owners should assess and improve the income prospects and risk profile of the company to achieve maximum value. Most investors determine the value of the business by assessing the carrier’s operating income generated during the ordinary course of business, typically using free cash flow or earnings before interest, taxes, depreciation, and amortization (EBITDA) as a proxy.
Risk factors, such as hidden liabilities or the sustainability of income projections, may result in an investor applying a higher risk premium to a business, resulting in a lower purchase price. Therefore, trucking company owners should demonstrate the ability to sustain or grow the current level of income even after the departure of an owner.
Related sections
Tax and other considerations in selling or gifting a trucking business
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.