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KSM Blog | Katz, Sapper & Miller CPA

Do You Know the Value of Your Transportation Company?

Posted 6:30 PM by

The transportation industry thrived in 2018. While signs point to some correction in 2019, the state of the market is currently strong, bank capital is readily available, and private equity firms are eager to get into the industry. These factors and more make this an appealing time for some owners to consider selling. Others are looking closely at growth opportunities such as investment in new technology and equipment.

Too often, transportation owners are making critical business decisions without the benefit of a key data point: the value of the company.

The value of the company is crucial information for making decisions throughout the business lifecycle, not just when it is time to sell. How much insurance coverage is necessary to fully protect the owners from an unforeseen event? How should owners plan for growth and profitability? These issues are relevant right from the start, and the answers depend largely on the company’s current value.

As the business grows and matures, owners often focus on creating an action plan to improve profitability and increase the company’s value. Though retirement may still be many years away, getting an idea of the value of the company now leaves a suitable window of time to form and execute a plan to optimize that value, minimize the tax impact, and ensure a smooth succession.

Some important questions to ask as the company grows might include:

  • What next steps are possible after exiting?
  • What target price will provide enough after-tax proceeds to fund those next steps?
  • Which process improvements, added efficiencies, or scaling efforts will help the company reach that target?
  • To what degree should owners incentivize drivers and other key employees?
  • What level of investment in new technology, equipment, and data assessment tools is appropriate given the current value versus the long-term valuation goal?

When You Are Ready to Sell

As your exit date draws near, knowing the current value of your company becomes more critical than ever. Questions abound at this exciting time, and each answer depends on the company’s value:

  • Are the owner’s retirement expectations realistic?
  • Is the timing right? Will selling now meet established financial goals, or is it better to wait another year or two before seeking a buyer?
  • If the company will be listed for sale, what is the optimal asking price?
  • How much flexibility should owners adopt in negotiations with potential buyers?
  • What are the hard numbers to consider in formulating an estate plan?
  • How will taxes impact the proceeds available to fund retirement?

Judgment calls are part of life for business owners, but in questions like these, the consequences are too big to rely on gut instinct. Whether it is a sale to insiders or a third-party, family succession, or general business growth, knowing the value of the company helps owners achieve their objectives no matter what path they take.

Learn more about KSM Advantage, a calculation of value report prepared by KSM, to help you gain the insight and intelligence you need to drive good business decisions at every stage of your transportation company’s lifecycle.  

About the Author
Tim Almack is the partner-in-charge of Katz, Sapper & Miller's Transportation Services Group. Tim helps clients analyze and improve key performance indicators, ensure accurate financial and tax reporting, and utilize resources to increase profitability and company value. Connect with him on LinkedIn.

 

About the Author
Dan Rosio is the partner-in-charge of Katz, Sapper & Miller’s Valuation Services Group. Dan advises clients on valuation, succession planning, and transaction matters, often serving as an expert witness and helping find solutions to unique challenges. Connect with him on LinkedIn

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