Selling out takes planning

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One of the most difficult decisions a trucking company owner must face is whether and when to sell the business. The next generation often has little or no interest in running a trucking company. Tough times like today’s trucking environment can create a real dilemma for owners. On the one hand, owners nearing retirement may be motivated to walk away from the hassle and stress, and many smart carriers are looking for solid merger and acquisition candidates. On the other hand, asset values are depressed, so it may be difficult for the owner to recover what he feels the company is worth.

This frustration may be based on a flawed premise, however. The process is not a quick and easy one, so market conditions could change anyway. Trying to get value based solely on market timing is like speculating in the stock market. Or gambling.

“Buying, selling or merging requires extensive planning and time to get the best deal for everyone,” says Miller Welborn, a veteran of the sale of Welborn Transport to Boyd Brothers and a principal of York, Pa.-based mergers & acquisition firm Larsen Batts Welborn & Co.
Welborn offers five keys for developing a successful sale, merger or acquisition strategy:

Define your objectives up front. If you are a seller, do you wish to continue working with the company after the deal, or ride into the sunset? If you are a buyer, what are you trying to accomplish, growing your market in existing lanes, or expanding your territory into new geographical regions? Defining your “deal points” up front in great detail helps you evaluate each potential transaction carefully.

Determine your company’s likely value. Obtain a realistic valuation estimate or study; you can’t rely on rules of thumb. A business is only valuable to someone else if it truly brings an earnings stream to the buyer. Consider retaining a certified or accredited valuation analyst to document your company’s range of values – even if you are years ahead of considering a deal.

Make sure equipment values are realistic. Smaller companies (those with fewer than around 50 trucks) might in reality be equipment sales because there rarely is a management structure that will transfer to the new owner. In today’s market, few lenders who will help finance the purchase are excited about used equipment, especially if you go into the deal with artificially elevated values. Get valuations experts or equipment dealers to give you trade-in and typical retail prices for your fleet.

Document your customer relationships. Having a meaningful customer base that is transferable is a critical component of good deals. “Buyers don’t want or need to buy brokered business,” Welborn says. “They want good, steady and stable direct customers.” Evaluate carefully the relationships you and your employees have with your customers.

Plan the structure and tax consequences of the deal. The structure of a proposed deal – the choice of a sale of stock vs. a sale of assets, for example – has enormous tax consequences that must be factored into the purchase price. A careful tax study can help structure a deal for the best after-tax dollars for either buyer or seller.

Selling your business isn’t something you should wing. To maximize your return and avoid pitfalls, consider professional help – a trusted CPA or attorney, a business broker or a firm specializing in mergers and acquisitions. Depending on which route you take, fees will vary from hourly charges to a percentage of the transaction price. In the end, expect to pay 10 percent of the deal in selling costs. That might sound like a lot, but it’s only slightly higher than the 7 to 8 percent you might spend on commissions and closing costs to sell a home. And remember, you have far more at stake.

Resources
Online article “12 Laws of the Business Buying & Selling Jungle” by Russell L. Brown, business broker, MBA and author of Strategies for Successfully Buying or Selling a Business: http://www.businessbookpress.com/articles/article148.htm.

Kenneth Dewittis a CPA and certified financial planner who serves as a part-time chief financial officer for a variety of businesses, including trucking companies. E-mail kdewitt@eTrucker.com.