How to Value a Trucking Company
The trucking industry is responsible for transporting various goods between metropolitan areas across North America. This industry plays an important role in our economy. As such, there is steady demand for trucking companies in the United States. However, the trucking industry has experienced slight revenue and profit decline in recent years. This is due to various factors such as increasing labor costs and poor economic conditions. This may be alarming if you are looking to buy, expand, or sell a trucking company. Despite these conditions, you can build a successful trucking company with proper guidance. One of the first steps is learning how to value a trucking company.
The best way to learn how to value a trucking company is to obtain a business valuation. During a business valuation, a valuation expert can help you understand the fair market value of a trucking company. Whether you are buying or selling, this information can help you take the next steps in maximizing the value of a trucking company. Peak Business Valuation, business appraiser, works with many trucking companies across the nation. We are happy to provide you with a business valuation for a trucking company. In addition, Peak can answer any questions you have on valuing a trucking company. Get started by scheduling a free consultation with Peak Business Valuation below!
How to Value a Trucking Company
Peak Business Valuation is a professional business appraiser. At Peak, we often use the market approach and/or the income approach to value a trucking company. Our business appraisers are well-trained and they will use their knowledge to determine the best approach for your trucking company. Often, the valuation process involves a combination of valuation approaches depending on the purpose of the valuation.
Valuing a Trucking Company Using the Market Approach
The market approach is popular for valuing small businesses. This approach is similar to the approach real estate appraisers use to value a property. Real estate appraisers determine a fair value of a property by comparing it to similar properties that recently sold. When valuing a trucking company, a business appraiser looks at similar companies that recently sold. If the trucking company is private, the business appraiser uses private transaction databases.
Multiples for a Trucking Company
Peak Business Valuation uses valuation multiples to determine the value of a trucking company under the market approach. To find applicable valuation multiples for a trucking company, business appraisers use the applicable NAICS or SIC code. Below, we highlight basic valuation multiples for a trucking company.
REVENUE or SALES Multiples for a Trucking Company
- When using the revenue or sales multiple, business appraisers apply a multiple to the trucking company’s revenue to determine its total value.
EBITDA Multiples for a Trucking Company
- The EBITDA multiple measures a trucking company’s return on investment (ROI).
SDE (Seller’s Discretionary Earnings) Multiple for a Trucking Company
- The SDE multiple measures a trucking company’s cash flow by multiplying its seller’s discretionary earnings by the multiple. This helps the valuation expert determine the fair market value of a trucking company.
There are various factors that determine which valuation multiple is most applicable to a trucking company. This may include the business transaction and the reason for the business valuation. For more information, see Valuation Multiples for a Trucking Company.
Valuing a Trucking Company Using the Income Approach
The income approach is another common valuation method to value a trucking company. When using the income approach, a valuation analyst assesses the risks of buying or selling a trucking company. We list a few of these risks below when learning how to value a trucking company.
- Competition: The trucking industry is extremely competitive. As such, it is vital to differentiate your trucking company from competitors.
- Workforce: It is crucial to hire skilled and experienced truck drivers. This can help increase efficiency and reduce risks.
- Equipment: To build a successful trucking company, it is important to have quality equipment. Reliable equipment promotes successful deliveries and a strong reputation.
- Fleet Management: Fleet management plays an important role in a trucking company’s success. This helps optimize routes, preserve vehicles, and increase savings.
Methods to Value a Trucking Company Using the Income Approach
There are two popular valuation methods under the income approach. They are the capitalization of cash flow method and the discounted cash flow method (DCF). The following paragraphs discuss these valuation methods.
Capitalization of Cash Flow Method
- Valuation experts often use the capitalization of cash flow method to determine the value of a trucking company. This method is most applicable to companies with long and stable histories. When using the capitalization of cash flow method, the business appraiser determines an appropriate measure of economic income for a specific time period. This time period is then divided by an appropriate capitalization rate. The capitalization rate represents a reasonable rate of return an investor can expect. It also assesses the risks associated with the trucking company. Some of these risks are highlighted above.
Discounted Cash Flow Method
- The discounted cash flow method is best for trucking companies that have strong financial histories. It is also beneficial for companies that have built reliable forecasts in the past. When using the discounted cash flow method, business appraisers use 3-5 years of projections to estimate the value of future cash flows. Then, the expert discounts the future cash flows using a discount rate rather than a capitalization rate. This helps them determine the value of a trucking company. Keep in mind, this valuation method is less reliable since it is limited to future cash flow estimates which are often inaccurate.
Summary
When valuing a trucking company, business appraisers may use the market approach and/or the income approach. The approach the valuation expert uses depends on various factors. To know how to value a trucking company and which valuation approach is best, receive a business valuation. During a business valuation, a business appraiser assesses the strengths and weaknesses of your trucking company. They will also determine the fair market value of a trucking company. With this information, you can take the next steps to maximize the value of a trucking company.
Whether you are buying, growing, or selling a trucking company, Peak Business Valuation, business appraiser, is happy to help! We work with many trucking companies across the nation. Peak is happy to provide you with a business valuation for a trucking company. We can also answer any questions you may have about valuing a trucking company. Get started now by scheduling a free consultation with Peak Business Valuation below!
See also Valuing a Freight Trucking Company, Valuation Multiples for Freight Trucking, and Value Drivers for a Freight Trucking Company.
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