Creating Value
Are you getting the most out of your business?
Let’s take a look at another business for sale. And once again, we’ll consider the business from the point of view of a potential buyer, but we will also see what lessons this business might hold for owners of other businesses.
This business for sale is a trucking company that specializes in what’s known as hot-shot trucking. There is some confusion over what precisely constitutes hot-shot trucking, but this company works in the oil industry and specializes in moving high value oil-and-gas parts all over the county. Based in the northern Plains, it has been in business more than 20 years. Unlike many trucking companies, this one gets paid for trips that go to and from a delivery.
It appears to be a very clean company, with the necessary permits, an excellent safety record and the required insurance, authorities and audits in place. Please note: As with the last business for sale that I wrote about, this one was brought to me by the brokerage site Bizbuysell.com. I have no stake in the sale of the business, nor do I certify that any of the information about the business presented is accurate. The information provided came to me in the form of the public listing and through conversations with the selling broker.
The broker for this business is Joe MacGuire of the Murphy Business and Financial Corporation. It claims to have strong profits and seems to have provided the present owner an excellent living. As we’ll see, there have been some issues that may have slowed the sale of this business.
Broker: Mr. MacGuire.
Type of business: Trucking company serving oil and gas companies nationwide.
Employees: Eight full time and two part time.
Location: Northern Plains states.
Asking price: $2.2 million.
Fixed assets and real estate: $1 million.
Intellectual property: Knowledge in specialized sector of trucking business.
Reason for selling: Owner has been in business for 30 years and is approaching retirement age.
Financials:
Business Overview
The owner is the founder and has worked in all aspects of his business. He is said to run a tight ship and is known for having a sound operation. He says he has had opportunities to grow the business, turning down business on a regular basis, but has been happy with the money he makes. The business has operating agreements with several service companies that provide recurring revenue. As you probably noticed, sales dropped from 2011 to 2012. I would want to know why this happened.
There are significant barriers to entry in this business. Besides the cost of the trucks, there are permits and licenses that are required of those in the long-haul trucking business. Also, employees have to go through significant training to operate large trucks and for the freight they carry.
The owner says he is in no rush to sell and has told his broker that he will wait for the right deal.
Challenges
This could be a challenging company to sell. It’s a specialized business, and it will take a buyer time to learn the details of operation. The seller has indicated that he’s willing to stay on with a new buyer for several years. As long as this works and the owner and new buyer get along, the owner’s knowledge base should be transferable.
The seller might want to think about systematizing the operations of his company. The more information that is documented, the easier it will be to transfer the company to a new owner.
Deals of this size can be hard to finance, and it can be difficult to find buyers who have enough cash. The owner may have to agree to help, and if he decides to do so, he should review the creditworthiness of the buyer carefully. An alternative financing method could be finding a Small Business Administration lender that would be willing to underwrite a significant portion of the transaction. It appears the company has about 45 percent of the asking price in hard assets.
Things to be learned
If you own a business like this and you really want to sell it, plan early for your transaction. Having a systematized operation with a real supervisor or supervisors can make the business far more attractive.
The seller has saved money outside his business. This is allowing him to take his time and wait for the proper buyer. Business owners who have put money into a retirement plan or other outside investments often have more options when it’s time to sell than those who don’t. This owner is also well served by having solid business contracts that produce recurring revenue. Buyers like that.
This business is making enough money to cover its cost of replacement equipment and provide cash for growth. Both are issues a sophisticated buyer will consider.
My take on this company
I find this type of company interesting. It has a strong niche, and it is producing solid profits. It is significant that the broker says the business is spotless — clean trucking companies can be hard to come by.
The broker told me that the seller was loyal to his employees and was very interested in making sure he finds them a good owner. There has been some conversation about selling to competitors, but at this point, the seller has not been pursuing those conversations. He is concerned that his competitors may not treat his employees the way he did.
Because the owner has put some roadblocks in the way of selling the company, he may have a hard time finding a buyer that meets his needs and desires.
If you were considering buying this company, what issues would you be concerned about? What questions would you want to ask the seller? Do you think the business is priced correctly? What would you pay?
Josh Patrick is a founder and principal at Stage 2 Planning Partners, where he works with private business owners on creating personal and business value.
Article source: http://boss.blogs.nytimes.com/2013/03/20/business-for-sale-a-long-haul-trucking-company/?partner=rss&emc=rss