The summer vacation can be a time of reflection for the business owner
Away from the day to day demands of the office, there is chance to give an overview of how that business is performing, where it is heading over the coming years, and what that business is ultimately worth. In this article we take a brief look at valuing your haulage business.
Why do it?
There are many reasons why business owners look at the value of their road haulage business:
Sale – If a business owner is thinking of selling a business, a valuation will enable them to choose the best time to sell from the viewpoint of maximising their return.
Purchase – Conversely if a business owner is thinking of investing in a road haulage business, a valuation is crucial to ensure that they are not paying a higher sum than the business is realistically worth.
It is important that both buyer and seller understand what the value of a business is so that the sale can be made with realistic expectations from both parties.
If a business owner is looking to increase the value of their business, a valuation can highlight areas where improvements can be made and show issues that can be addressed to increase profits.
In addition, business valuations can be a motivator for its staff as it can expose flaws in a business as well as encourage management to focus on the most important issues.
Retirement, inheritance tax planning, internal shares market, and occasionally, just curiosity, are all reasons why someone would choose to have their road haulage business valued.
How do you do it?
There are various valuation methods used to determine the value of any business, and the methodologies employed are far from an exact science. At its most basic level, the value of a business is what someone else would be prepared to pay for it, but there are a few rules of thumb that can be observed.
Most valuation methods look at either the assets value of a business, its past profitability, expected future profitability, or some combination of the three. Depending on the nature of the business, differing weightings may be given to each of these approaches.
As part of the process, we may need to establish the true underlying profitability of the business.
Typically, when valuing a haulage business we would take the following approach to establish the true underlying profitability of the business:
- Look at the published profit for the past 4-5 years as disclosed in the accounts;
- Adjust these for payments made to the owner and other shareholders;
- Consider adjusting for depreciation and interest costs on external borrowings;
- Adjust for costs that maybe be capable of being reduced under new ownership, such as excessive overheads, or staff costs;
Once that figure has been arrived at, a price earnings multiple can be applied to estimate the value of the business. The level of this multiple can vary widely, and can depend on a number of factors such as:
- The marketability of the shares in the company – quoted companies tend to have higher P/E multiples than privately owned companies. However, a simpler share ownership pattern in a private company may be more attractive to a purchaser than one with a wide range of smaller shareholders.
- Businesses with higher forecasted profits tend to attract better multiples – so a haulage business with a new lucrative contract will be in a better position than one with a major contract coming to an end that has not yet been renewed.
- Wider economic conditions can play a part also, with the success of the haulage sector being very much linked to the underlying economic cycle. However, haulage business owners can put some measure in place to help themselves here too, by maintaining strong customer relationships, hedging against fuel cost and interest cost risks, and looking to improve fleet efficiency.
How can I Increase the value of my haulage business?
As a general rule, the more a new owner can ‘plug and play’ with regard to a potential acquisition, the more they will be willing to pay for it.
Making sure that your haulage business has the right people and the right processes in place is crucial to this.
It is always worth taking time to carry out a review of your haulage business to see if its value is matching up with your expectations and to identify where matters could be improved and then put actions into place to achieve this.
Acting now ahead of any possible rushed sale in the future can yield beneficial results.
For more information about how Hawsons can assist your haulage business please click here to book a free initial meeting
Paul Wormald is a partner at Hawsons, working in the Doncaster office. He worked previously with two national firms of Chartered Accountants prior to joining Hawsons in 2001. For more information or advice on anything covered in this article, please contact Paul on [email protected] or 01302 367 262.[/author_info]