Why a Down Economy May Be Making Your Business Value Go Up
If you are like many transportation business owners, your business could be down from 10-25% or more compared to last year. But as surprising as it may seem, your business may be more valuable today than it has been in several years.
To grasp this, it is important to understand the potential buyers for your transportation business and how they value businesses.
There are two types of buyers for transportation businesses. A financial buyer values businesses based on its “stand alone” financial performance and its ability to produce a return on an investment. A strategic buyer values businesses differently. A strategic buyer is usually in the same or a related industry. This buyer values businesses based on what efficiencies and new cash flow can be created through the existing company and the company to be acquired working together.
Today your business may attract weaker offers from financials buyers than it could have a year ago—because, as a stand alone operation, the financial performance is likely weaker. However, your business may attract greater offers from strategic buyers than it could have a year ago. Why?
It is simply supply and demand. As the market for available transportation customers shrinks, the value of the remaining available customers expands. As businesses attempt to offset losses and to replace much needed cash flow they have two options: Growth through acquisitions or organic growth.
There is nothing wrong with either approach. The biggest difference is time. Organic growth is usually a process while growth by acquisitions produces an immediate effect. Because time is one thing many struggling companies do not have, many business owners can not afford to wait on a process. Some strategic buyers are willing to pay more for a solution today that will stop or slow the effects of severe cash flow problems tomorrow.
The fact that your business’ stand alone financial performance may be far from stellar could be less relevant than you think. The value of your accounts may be at a premium right now, because of the value of the impact they can potentially produce for another existing transportation business owner.
If you have questions about the offers your business could attract in the open market from a strategic buyer, please submit the contact form below.
