Part 1: How to Avoid a Disappointing Exit from the Transportation Industry
Business owners decide to exit the transportation industry for multiple reasons: burnout, new career opportunity, retirement, etc. Whatever your reason is, make sure you are positioning yourself to maximize your exit. Below is Part 1 of a two-part series on how to avoid a disappointing exit from the transportation industry.
Like most business brokers, Charles Tenney & Associates’ success fee for selling a business increases as we secure a higher sales price for our client. When it comes to pricing businesses, our motivation is parallel with the sellers’. We will assess what similar transportation businesses are selling for and price the business as high as possible without scaring the buying pool away. Keep that mind as you read the following story.
Not long ago, a transportation business owner, “Mr. Jones,” came to Charles Tenney & Associates ready to retire and wanting to sell his transportation business. Mr. Jones had young grandkids he wanted to spend time with, and he and his wife had plans to travel and see the country.
After examining the business, CTA assessed that it would likely sell for a maximum price of $1.5 million and offered to list the business for Mr. Jones. Mr. Jones went down the street and asked another business broker what he would list it for. The business broker said he could sell the same business for $3 million. After hearing this, Mr. Jones returned to Charles Tenney & Associates. Mr. Jones said he liked the idea of Charles Tenney Associates being an industry specialized business broker and would list his business with CTA --if CTA listed it for $3 million.
Charles Tenney & Associates would have liked to help the business owner, but selling the business at 100% over real market value presented a zero-probability of success for both the owner and CTA. No buyer would pay what the owner was asking for and no lending institution in America would finance the deal.
CTA explained that Mr. Jones’ “ideal” sale price would not give him a real chance to exit the transportation industry and tried to change his mind. But Mr. Jones was locked in on that “$3 million”. So CTA turned down the business—the same way a real estate agent would turn down listing a house that was priced two times higher than the home next door.
Fast forward 12 months:
Mr. Jones’ wife returned to CTA after a 12 month listing agreement had expired with the other business broker. She shared how the business broker had delivered no buyers for their business and stopped communicating with them all together about 90 days into their 12 month agreement. Even more troubling was the fact the primary owner and top producer, Mr. Jones, had recently underwent severe health issues--leaving the company in the hands of his wife who had little experience running a business. Since taking over, the performance of the business had decreased by 30% and the “real value” of the business had plummeted from $1.5 million to an estimated $900,000.
Faced with few options, Mr. and Mrs. Jones have decided to try to rebuild the business which will postpone exit/retirement plans at least 3-5 years.
Question 1: How did this business owner’s plan for exiting the transportation industry get so far off track?
The disappointing circumstances this husband and wife face are sadly not that uncommon in our industry. The fastest way to get an exit plan off track is making life altering decisions based on unreliable information. Business brokers from outside our industry often provide horrendous information that creates devastating consequences for transportation business owners. These owners wasted 12 months and delayed retirement 3-5 years because they planned their industry exit around a false expectation. If they would have gone to the market with a reasonable price, there is a good chance they would be traveling the country now—but that is unfortunately not the case.
Question 2: Why do general business brokers commonly provide bad information to sellers in our industry?
Sometimes business brokers provide bad information because they do not understand the complexities of our industry and have no experience selling businesses like yours. Other times business brokers provide bad information because that is what it takes to get your business locked up in a long-term contract—hoping over time you will adjust your price and the broker will eventually have a reasonable chance to sell it.
Question 3: How can you avoid similar disappointment when you approach exiting the transportation industry?
It starts with formulating accurate expectations about your industry exit from reliable information. Charles Tenney & Associates can equip you with that information. No other resource has more experience with valuing and selling transportation businesses than Charles Tenney & Associates. Most importantly, we care about this industry and have a tremendous amount of respect for the business owners who welcome the challenges of it. We care enough to tell you the truth about your business’ value and your future exit from this industry.
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