How to Value a Moving Company
The moving service industry includes businesses that provide local and long-distance moving and relocation services. This involves trucking and shipping household, institutional, or commercial goods, equipment, and furniture. For many years, the moving service industry has retained steady demand. As such, the industry generates billions of dollars each year. Moving forward, we can expect factors like population growth and growth in the housing market to boost the demand for moving services. This may present a lucrative opportunity for individuals who are buying or selling a moving company. However, the industry is extremely competitive. To succeed, it is important to understand how to value a moving company.
By learning how to value a moving company, you can begin to maximize the value of a moving company. Start by receiving a business valuation from a reputable business appraiser. During a business valuation, a business appraiser identifies the risks and opportunities for a moving company you are buying or selling. In addition, they will calculate the fair market value of a moving company.
Peak Business Valuation is a professional business appraiser. At Peak, we frequently work with moving companies. We are happy to provide you with a business valuation for a moving company. If you have any questions about how to value a moving company, reach out! Schedule a free consultation with Peak Business Valuation, business appraiser, below!
How to Value a Moving Company
There are various valuation approaches a business appraiser may use during the valuation process. When valuing a moving company, business appraisers at Peak typically use the market approach and/or the income approach. However, the valuation expert will use their expertise to determine the best approach for your moving company. This can involve using a combination of valuation approaches to value a moving company.
Valuing a Moving Company Using the Market Approach
Valuation analysts often use the market approach to determine the value of a moving company. This approach is similar to how a real estate appraiser values a property. Real estate appraisers often assess similar properties in the area to determine an accurate value of a property. When a business appraiser values a moving company, they assess similar companies that recently sold on the market. If the company is private, they will refer to private transaction databases for relevant information.
Multiples for a Moving Company
When using the market approach, valuation experts utilize valuation multiples. Valuation multiples are ratios that compare the value of a moving company to a financial metric. This helps determine a fair market value of a moving company. To find the market multiples for a moving company, business appraisers apply the appropriate NAICS or SIC code. Below, we discuss the basics of valuation multiples for a moving company.
SDE (Seller’s Discretionary Earnings) Multiples for a Moving Company
SDE multiples are common when valuing a moving company. The SDE multiple assesses a company’s cash flow by multiplying its seller’s discretionary earnings by the multiple. This results in an accurate fair market value of a moving company.
EBITDA Multiples for a Moving Company
EBITDA multiples measure the return on investment one can expect a moving company to make.
REVENUE or SALES Multiples for a Moving Company
Revenue multiples measure the total amount of revenue a moving company generates. Business appraisers apply a multiple to a moving company’s revenue to estimate its total value.
For more information on how to value a moving company, see Valuation Multiples for a Moving Company.
Valuing a Moving Company Using the Income Approach
The income approach is another popular method to value a moving company. This valuation method analyzes the risks associated with the moving company. Below, we list a few risks you may encounter when buying or selling a moving company. Valuation experts analyze these when valuing a moving company.
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- Key Personnel: To build a strong moving company, it is crucial to have an effective moving team. It is also beneficial to ensure that your moving company does not rely on a specific employee.
- Equipment: Moving companies need to have proper and efficient equipment to operate effectively. Additionally, be sure to obtain affordable equipment.
- Competition: The moving service industry is extremely competitive. It is vital for moving companies to differentiate from competitors and have a strong reputation.
- Financial Strength: Moving equipment and transportation can be expensive. To be profitable, moving companies need to develop financial strength with effective planning and budgeting.
Methods to Value a Moving Company Using the Income Approach
Under the income approach, there are two common methods for valuing a moving company. They are the capitalization of cash flow method and the discounted cash flow method. We discuss how to value a moving company using these valuation methods below.
Capitalization of Cash Flow Method
- Generally, business appraisers use the capitalization of cash flow method to value moving companies with long and stable histories. When using this method, the appraiser calculates a reasonable measure of economic income for one period. This time frame is then divided by a capitalization rate. The capitalization rate reflects an appropriate rate of return a buyer can expect. Additionally, it assesses the risks a buyer may encounter when buying or selling a moving company. Some of these risks we list above.
Discounted Cash Flow Method
- The cash flow method is best for moving companies that have strong financial pasts. It is also ideal for companies that have built reliable forecasts. This valuation method involves using 3-5 years of projections to estimate the value of future cash flows. The business appraiser then uses a discount rate to divide the future cash flows to determine the moving company’s value. Keep in mind, the discounted cash flow method is less common because it relies on future cash flow projections which can be subjective.
Summary
Business appraisers often use the market approach and/or the income approach when valuing a moving company. The valuation methods give the expert important insights to determine the value of a moving company. To determine the best method for your moving company, receive a business valuation for a moving company. This is a great opportunity to learn about the strengths and weaknesses of your moving company. With this information, you can increase the value of a moving company you are looking to buy or sell.
Peak Business Valuation, business appraiser, is happy to help moving companies succeed! We work with many moving companies throughout the United States. With Peak, you can receive a business valuation for a moving company. We also offer a free consultation to answer any questions you may have about how to value a moving company. Schedule a free consultation with Peak Business Valuation today!
For more information see Valuing a Moving Company, Value Drivers for Moving Companies, and Valuation Multiples for a Moving Company.
