The Do’s and Don’ts of Selling a Logistics Company
Logistics businesses are in high demand right now – find out how to get yours ready for sale.
Business owners in the supply chain and logistics industry are constantly changing how they do business in hopes of finding a better, faster way to meet customer needs and enhance efficiency. This “kaizen”, or “continuous improvement”, model had led the supply chain and logistics industry to become one of the largest industries in the United States economy. Within the supply chain and logistics industry are hundreds of smaller sectors, one of the most critical being the Transportation industry. In 2011 alone, Transportation accounted for $603.9 billion in revenues and is expected to continue growing rapidly, with a forecasted increase of 14.8% by 2022. If you own a freight forwarding, trucking, or freight brokerage company and have been thinking about selling your business, we have some tips that can increase your appeal to buyers and ultimately get you the highest sales price possible.
The Transportation industry in considered to be a mega-industry in America, with hundreds of thousands of third-party logistics firms focusing on 3 main areas of transportation: air freight, intermodal and trucking. Transportation companies generally pull around 7.7% in gross profit and on average, have only 4 employees. The advantage to working in an industry that is constantly evolving is that with change comes opportunity, and freight forwarding businesses are facing several opportunities for growth and profitability. As China and India shift into the #1 slot as electronic manufacturers, this opens up more opportunity for international importing/exporting. Sophisticated new software also opens the door to become more than just a shipper, but also a consultant on all aspects of the supply chain. If you have a business in the transportation industry and have been considering an exit strategy, the first step is finding out how much your business is worth. The formulas below are to serve as guide only and keep in mind that only a professional business intermediary can tell you the true value of your business.
- Freight Forwarding: 50% of annual sales, 2.6x SDE
- Trucking Company: 50% of annual sales, 1-2x SDE + market value of assets, 2-3x EBITDA
Now that you have an idea of what going into valuing a Transportation business, you take an educated guess at what your business might sell for. After all of your years of hard work, it is only right that you would want to get the highest possible sales price for your business and these 5 tips can help increase the value of your logistics business and increase it’s appeal to buyers.
“They basically came up with the value which was right on with what we felt the business was worth, within a week we had 3 people looking at the business”
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We live in the age of technology and every time we think we have the latest software or gadget, a newer version comes out. This can be frustrating but enlightening because technology is meant to make our lives easier and is an incredible tool for business. So many types of technology exist in the Logistics and Supply Chain space that is can be tough to narrow down what is best for your company. Start by identifying the needs of your clients and area you may be lacking in. Do your customers need around the clock tracking and tracing? Maybe you need assistance in managing your fleet. Whatever it is, there is software to help you improve in these areas. These programs were rated as some of the Best Transportation Software of 2015:
- Axon Software: Real-time trucking software with dispatch & accounting.
- Teletrac GPS Tracking: Fleet Management with real-time GPS.
- TruckLogics: Manage dispatch, expenses, billing, maintenance, & more.
Another benefit to having state-of-the-art software is that it increases your accessibility to more clients. Corporations dictate who they do business with and oftentimes, certain software capabilities determine who wins transportation bids. Having current and holistic software will not only organize your business and help win new business, but it will also impress buyers and increase your inventory value.
The Logistics industry is morphing into much more than just outsourced shipping; freight brokerage firms are now fully managing all aspects of the supply chain for clients. What started as simply moving freight has evolved into an entire outsourced transportation department and customers love it. Transportation firms that offer consulting services have a higher chance of retaining customers due to how integrated they become with their daily routines. Supply chain and logistics consulting services can help clients increase efficiency, cut expenses, create a leaner supply chain, and manage all inbound/outbound freight. There is tremendous value in offering the full package, and if your firm has not jumped on the bandwagon, you might be missing out on some serious revenue. Offering a full array of supply chain management services not only opens up new revenue streams and bring you closer to clients, but it allows shows buyers that you are able to adapt to the latest industry trends. Buyers like seeing a firm that has already taken steps towards the current industry demands so that they don’t have to perform an overhaul themselves.
Set Standards & Train
For your business to run at its best, your team needs to be on the same page with a focus on customer satisfaction, cost reduction, and productivity. Creating and implementing a robust training guide that allows for continuous improvement and learning sets your staff up for success. Taking a top-down approach gets the entire team motivated and working towards the same goal; if your managers aren’t on board then subordinates will not follow either. Bi-annual training and team building sessions will strengthen everyone’s camaraderie and keep your business up to date on current trends and industry standards. When a buyer tours your business, they will be impressed with the synchronicity of your team and how well your business is able to function without constant input from the owner.
Client Relationships & Concentration
Every buyer’s worst nightmare is purchasing a business then losing a huge account because the relationship was with the previous owner. If you are thinking about selling your business within the next year, client relationships are something that you need to begin managing now. Business owners wear many hats and if you find yourself wearing the Sales hat, this might be something to need to address. Long before you decide to sell your business, gradually remove yourself from sales and begin assigning accounts to tenured account managers. Beginning the process now makes for a more seamless transition when a new owner takes over, and calms all their fears of losing accounts due to relationships. Another aspect of sales that may require some attention is your client concentrations. Analyze your sales volume and revenue breakdown; is one customer responsible for more than 30% of your revenue? This will be problematic in the eyes of a buyer so taking the time now to even out your client concentrations will really increase the appeal of your business.
Key Performance Indicators
Continuously analyzing your business to determine ups and downs is critical to success. Take time on a regular basis to analyze your supply chain and see where your business is doing really good and where it needs some improvement. Once you identify the dips, dig deeper to determine the cause. Are employees and managers using their time wisely? Are services being delivered on time and with customer satisfaction? Is inventory being managed properly and how accurate is it? Analyze your weak points and work with your management team to provide solutions. Once solutions have been implemented, productivity, customer satisfaction, inventory accuracy, and safety will increase.
If you have been thinking about succession planning and exit strategies for your logistics business, we hope these 5 tips have helped you. The economy in the Southeast is booming right now, and buyers are looking at Charlotte as a hotspot for acquisitions. If you are thinking about selling your transportation business, the first step is finding out how much it is worth and we can tell you with a no-cost, no-obligation valuation. Even if you are 6 months to a year away from selling, taking these steps now can help you increase the sales price for when the time is right for you.