Valuation Multiples for a Towing Company
The automobile towing industry includes companies that tow light or heavy vehicles. They may also provide incidental services like storage and road repair. IBIS World notes that there are about 10,000 towing companies throughout the country. Together, these towing companies generate over $9 billion dollars in revenue. Moving forward, we can expect sales revenue to continue to grow. However, demand for towing services may begin to decline. This is due to factors such as an increase in public transportation and new vehicles on the road. To build a strong towing company, it is important to learn about valuation multiples for a towing company. When valuing a towing company, a valuation expert will often use market multiples for towing companies.
Valuing a Towing Company
When buying or selling a towing company, it is important to understand how to value a towing company. The best way to start is by receiving a business valuation. If you are purchasing a towing company, a business valuation can help you determine a fair purchase price. In addition, the appraiser may discuss effective negotiation strategies. If you are looking to sell a towing company, a business valuation can help in maximizing its value. It is also useful for determining an appropriate asking price. Listing the business too high can scare away potential buyers. Where listing the business too low, may leave money on the table.
Business appraisers use various methods to determine the fair market value of a towing business. One approach is to use valuation multiples for towing companies. In this article, we explain what valuation multiples for a towing company look like. However, this is only a guide. For more specific guidance, receive a business valuation for a towing company. Peak Business Valuation is happy to provide a business valuation! We can also answer any questions you may have on valuing a towing company. Start today by scheduling a free consultation with Peak Business Valuation, business appraiser!
Valuation Multiples for a Towing Company
The image below displays average market multiples for a towing company. As part of a business valuation for a towing company, a business appraiser commonly uses multiples. However, these are only averages. For specific multiples for your towing company, obtain a business valuation. Peak Business Valuation is happy to provide a business appraisal for a towing company. Schedule a free consultation today to learn more!
Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
What is a Valuation Multiple?
There are various methods that business appraisers use to value a towing company. The market approach uses values called multiples. These values are ratios that compare your towing company to similar towing companies that recently sold. Doing so helps the valuation expert determine an appropriate valuation multiple for your towing company. The appraiser then uses various valuation approaches to determine a range of value for the towing company.
Often a business appraiser uses an SDE multiple. An SDE multiple compares the seller’s discretionary earnings with the implied value of the towing company. For instance, the seller’s discretionary earnings of a towing company are $150,000. With a 2.39x SDE multiple, the implied value of a towing company is $358,500. ($150,000 times 2.39x) Contrarily, if a 2.93x multiple is most applicable, the implied value of the towing company is $439,500. ($150,000 times 2.93x)
Peak Business Valuation, business appraiser, provides business appraisals for towing companies across the country. We are happy to work with individuals who are buying, expanding, or selling a towing company. Start today by scheduling a free consultation with Peak Business Valuation!
SDE Multiples for a Towing Company
Average SDE multiple range: 2.32x – 3.18x
According to Peak’s data, towing companies transact between a 2.32x – 3.18x average SDE multiple. To determine an implied value of a towing company, apply the multiple to the seller’s discretionary earnings. The equation is as follows:
SDE X Multiple = Value of the Business
Suppose a towing company generates $377,000 in seller’s discretionary earnings and transacts at a 2.79x multiple. In this case, the business value is about $1,051,830.
$165,000 X 2.79x = $1,051,830
SDE is a popular multiple an appraiser uses when valuing a towing company. To calculate SDE, the expert takes the towing company’s profit and adds back any expenses the new owner may not incur. These expenses may include owner’s compensation, personal transactions, and non-recurring or non-related business expenditures. This allows the expert to determine the potential cash flow of the towing company. This is crucial when valuing a towing company.
EBITDA Multiples for a Towing Company
Average EBITDA Multiple range: 3.01x – 4.30x
On average, towing companies transact between an average EBITDA multiple range of 3.01x – 4.30x. Apply this multiple to EBITDA to determine an implied value of the business. See the calculation below.
EBITDA X Multiple = Value of the Business
For example, a towing company has an EBITDA of $300,000. It transacts at an EBITDA multiple of 3.76x. Using the above metrics, the towing company is worth approximately $1,128,000.
$300,000 X 3.76x = $1,128,000
An EBITDA multiple helps determine a company’s return on investment (ROI). Business appraisers may prefer using the EBITDA multiple because it helps normalize differences. This allows comparisons to be made between similar towing companies. Normalized ratios provide a more accurate representation of the future earnings that a buyer can expect from a towing company.
REV Multiples for a Towing Company
Average REV Multiple range: 0.83x – 1.09x
According to our data, towing companies sell an average of 0.46x – 0.73x of revenue. A professional business appraiser can derive the implied value of the business by multiplying the amount of revenue a towing company makes by the valuation multiple. Refer to the equation below.
Revenue X Multiple = Value of the Business
For instance, a towing company makes $1,180,000 in revenue. It then transacts at a 0.94x multiple. In this case, the business is worth approximately $1,109,200.
$438,000 X 1.20x = $525,600
Often a business appraiser at Peak Business Valuation less frequently relies on a REV multiple. This is because it doesn’t consider factors that impact cash flow. However, using their expertise they will determine the methods and multiples are applicable to your towing business.
Summary
Determining the valuation multiples for a towing company can be complicated. As such, it is best to receive a business valuation for a towing company. As part of a business valuation, an appraiser at Peak Business Valuation looks at the strengths and weaknesses of your towing company. Additionally, they will compare your towing company to similar towing companies that have recently sold on the open market. Using various valuation methods, they will then determine a fair market value for the towing company.
Peak Business Valuation, business appraiser, values towing companies on a regular basis. We are happy to provide you with a business valuation for a towing company. In addition, we can answer any questions you may have about the value of a towing company. Start today by scheduling a free consultation with Peak!
Be sure to also see Value Drivers for Automobile Towing Companies, How to Value a Towing Company, and Valuing a Towing Company.
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