If you want to own your own small trucking business you have two options. You can build it from the bottom up or you can buy an already established small trucking company. Both options have their positives as well as challenges or obstacles that should be considered. If you are thinking about purchasing an existing company there are some important considerations that you need to evaluate before deciding if this is your best option.
As with most types of major purchases the selling price is going to be a major factor in determining if this is the small company for you. The problem is that with a trucking company price factors into many different aspects of the company. The asking price will be based on the equipment, land and buildings, vehicles, assets and business equipment as well as the customer or client base.
The more costly the asking price of the trucking company the more assets the purchase will include. However, the person selling the company may inflate the value of the trucks, equipment, building, land or even the customer base in their selling price determination. It is important to have a good understanding of the industry prices for comparable companies for sale in the same general geographic area so you can make an accurate offer.
It is a good idea to have small trucking company valuated by a professional if you are seriously considering a purchase. Business valuators or business appraisers typically charge a flat fee to give you an accurate assessment of the dollar value of the business in its current state. This includes reviewing the books and inventory on hand plus looking closely at the condition of the assets that are going along with the company. This valuation can also be helpful in negotiating a buying price that may be below the asking price based on an impartial third party’s report.
Assets and Equipment
It is critical to closely check out all the equipment, especially the big ticket items in the sale. This includes all your capital equipment such as trucks, loaders, trailers, buildings, computers and office equipment. The more costly the item is to replace the more carefully it should be examined to determine the actual current condition.
Small trucking companies, just like larger companies, should have some effective, accurate and efficient system for listing assets and inventory on hand. Don’t just take the database at face value, spend a few days checking to make sure the inventory and asset listing is accurate. All equipment should be in good running condition and able to pass all safety and licensing inspections. Since many people aren’t mechanics by trade, paying someone to give the trucks a thorough check is a good idea.
Customer Base and Reputation
Like the inventory and assets, information on the customer base that goes with the company should be easily accessible and readily available. Smaller companies may keep customers on the books for years even if they are not currently using the trucking service. Make sure that you check the customer base information with the financial statement to ensure that the customer list isn’t outdated or simply padded with names that are not active clients.
It is also a good idea to randomly call a few of the active clients as well as the inactive clients if available. Find out why they continue to use the trucking company or why they stopped. Buying an existing trucking company means you are also buying their reputation, which can be good or bad. Even if you re-brand the company a bad reputation is hard to shake and it could seriously impact your ability to bring back old customers until you have a few years of good business under your belt.
Building up a company with a bad or shaky reputation isn’t impossible, but it needs to be calculated in when determining the actual value of the company and how much you can anticipate earning for the next few years.
Cost Of Operation
When you reach the point of seriously considering the company you need to have full access to their financial statements or profit and loss statements. This should clearly itemize all the costs of doing business including insurance, fuel costs, salaries, mortgage or rent on the building or facility, truck payments, annual repair and service costs and so on.
These statements will be essential in determining if you can make a go of the business given that you may have to borrow money for the investment. Of course, you may have options to decrease your operating costs by switching from salaried drivers to sub-contracted drivers that may also be owner/operators. This has its advantages since you only pay the driver after they complete the contract, but it also means that you don’t have total control over the driver and the rigs that are representing your business.
Many small trucking businesses are under-insured so it is important to calculate this into your costs of doing business. The good news is that the right insurance can and will protect your business from risk in the event of an accident or injury involving one of your vehicles or drivers.
The loan payment will be an additional cost of operation that the current owner may or may not have. Keep in mind this additional cost should be offset by the existing business since it is impossible to accurately predict how much new business you will get once you take over.
Buying an existing small trucking company is a great option of those that want to join the ranks of business owners. However, just like any investment, it needs to be done using information and help from professionals that are familiar with the trucking industry.