Part Two: How to Avoid a Disappointing Exit from the Transportation Industry
One of the greatest causes of a disappointing industry exit is something you would probably not expect at all: Grooming a business for sale. You may be thinking, “What?!? Doesn’t that contradict so many articles I have read about selling transportation businesses in The Fastlane?” The answer is yes and no. Here’s why.
Grooming a business for sale is the correct way to approach an industry exit. However, grooming requires a seller to re-invest in his or her business. Investing time and effort toward improving a future business sale without a correct expectation of the return on investment… is a one-way ticket to disappointment.
To illustrate this, let’s examine a recent conversation between Charles Tenney & Associates (CTA) and a Houston transportation business owner.
Recently a Houston operator expressed to CTA that he was interested in postponing his business sale in order to enhance a future exit from the transportation industry. He planned to grow the business an additional 20% in the upcoming year and expected to collect more proceeds from a future sale as a result of the growth. He also shared he was looking forward to focusing on his other businesses that are much more profitable than his transportation company.
We had already discussed the value of this transportation business in the current market. When I asked him what increase in proceeds he expected from selling his business one year from now, he responded, “I have no idea.” So I spent some time with him breaking out a few future sale scenarios. We examined these factors:
- increased market value for 20% greater revenue stream
- increased debt for upgraded/additional vehicles to service the additional growth
- capital gains tax
- projected profitability
- time invested to facilitate business improvement
- environmental factors (fuel/economy) affecting industry
After taking all of these factors into consideration, we discovered that the owner could possibly net an additional $5,000-10,000 from a future sale.
I asked the owner, “Do you want to postpone a business sale, continue to be on call 24/7, and continue to neglect your more profitable businesses for the purpose of “maybe” earning an additional $5,000-10,000 one year from now?” Not surprisingly, he said absolutely not.
There are many legitimate reasons to postpone a business sale: not ready to let go, waiting to see if a son or daughter will express interest in taking over the business, etc.
But if the sole reason for postponing an industry exit is to earn more money from a future sale, the math has to add up.
This Houston operator’s intent to fine-tune his business was the correct way to responsibly approach a business sale. But in this scenario, grooming the business for a future sale failed to present a return on investment significant enough to make the improvement effort worthwhile.
Does grooming a business for sale or postponing a sale for a greater future return make sense in other scenarios? Of course it does. But to avoid a disappointing exit, owners need to determine if the grooming effort will be worthwhile on the front end of their exit strategy.
Once you determine the likely return on your investment for grooming your business for sale, you may find that your time, energy, and pocket book could be better invested in retirement/other business ventures/etc.
Conclusion:
When it comes to timing your exit from this industry, you have to be able to answer the following question, “Is what I am waiting for…worth waiting for?” If you need help answering this question, please contact Charles Tenney & Associates immediately. An industry specialized business broker will be happy to help you make an educated decision about future. Submit the contact form below for a no-obligation consultation.
