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Value of business
Old 03-25-2007, 07:08 PM   #1
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Value of business

I am considering selling my trucking company. I have about 1.2 million in hard assets. My gross reciepts are about 5 million per year. My net is about 2 to 300,000 each year. I have no idea on what kind of value if any should be placed on the business? Is there any formula or any kind of guidelines avaliable? Thanks
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Re: Value of business
Old 03-25-2007, 07:12 PM   #2
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Re: Value of business

There are companies that specialize in this sort of thing.

You might contact one http://www.vhvaluations.com/
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Re: Value of business
Old 03-26-2007, 12:21 AM   #3
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Re: Value of business

One number I have heard used is 3 times the annual profit... of course when you have more than that in hard assets, other factors need to be included.

Definitely get somebody or even a couple of people to help you evaluate that number more accurately.
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Re: Value of business
Old 03-26-2007, 11:27 AM   #4
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Re: Value of business

Don't know if you have considered using a realtor for the sale, but you might want to. They have formulas they can plug in to help you come up with a valuation and an asking price. There are a couple of websites you might want to look as as well. You can search for Trucking Companies and see how others have valued their businesses. They are (hope this works, haven't tried posting a link yet)

http://www.bizbuysell.com

and

http://www.businessbroker.net
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Re: Value of business
Old 03-26-2007, 02:58 PM   #5
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Re: Value of business

Every year Inc Magazine has an article on biz valuations.

Different industries and sizes.

http://www.inc.com/resources/valuations/

Should be able to find something in here
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Re: Value of business
Old 03-26-2007, 03:26 PM   #6
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Re: Value of business

I've also heard the "8.5x ebitda" thrown around as a valuation metric while reading about M&A in the paper
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Re: Value of business
Old 03-26-2007, 04:24 PM   #7
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Re: Value of business

Since you said you have no idea of the value that you should place on your business, let me toss out a couple of thoughts to perhaps get you started.

You should be able to get a ball-park estimate of the value of your company by estimating the present value of all the future earnings.

In theory, a business that earns E over the next year and grows those earnings at a constant rate, G, forever is worth E/(K-G) where K is the risk-adjusted discount rate. Of course, estimating those parameters is the hard part. However, since it's your company, you should be in a position to estimate an average long-term G as well as anyone. For K, you could start with 10%, which is the long-term return of the stock market. You can adjust the number up or down depending upon your assessment of the relative risk of your particular trucking company.

If estimating an average G for the little formula doesn't seem feasible, you can setup a spread sheet of forecast earnings for as many years as you can and then transition the earnings growth to some average G which you might expect your company to achieve when it is a mature company. You can then calculate the present value of that earnings stream using a discount rate like I explained above.

As a check, you might take a look at the P/E ratios of some of the publicly traded trucking companies that are similar to yours, and apply that to your company's earnings.
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Re: Value of business
Old 03-26-2007, 05:26 PM   #8
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Re: Value of business

I think that traditional valuation formula fall short here. For the type of company being described, it is likely that the labor of the current owner is a significant portion of the value of the company. In other words, a significant portion of the net earnings are a result of the labor input of the owner. The company is worth much less with him around, unless there is an existing management team that is going to stay when it sells. it is likely the worth of the company is not a lot more than the worth of the inventory. Certainly more, (even a lot more), but I doubt it is worth multiples of the worth of the inventory. OTOH, I know absolutely nothing about cartage companies, and could be completely wrong.
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Re: Value of business
Old 03-26-2007, 07:03 PM   #9
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Re: Value of business

Quote:
Originally Posted by bbuzzard
I think that traditional valuation formula fall short here. For the type of company being described, it is likely that the labor of the current owner is a significant portion of the value of the company. In other words, a significant portion of the net earnings are a result of the labor input of the owner. The company is worth much less with him around, unless there is an existing management team that is going to stay when it sells. it is likely the worth of the company is not a lot more than the worth of the inventory. Certainly more, (even a lot more), but I doubt it is worth multiples of the worth of the inventory. OTOH, I know absolutely nothing about cartage companies, and could be completely wrong.
I agree. If the company cannot function without OP, then it isn't worth much more than the value of its assets minus its liabilities. However, if there is a customer base, so that another person could manage the company, its value would still be able to be estimated by the methodology I suggested. K, however, might be a much larger number - perhaps 30% or higher. Nevertheless, OP should be able to say what rate of return would be necessary for him to purchase the assumed income stream, and that is the rate that should be used to discount the future earnings.
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