For brothers Mike and Martin Wade, the ticket to prosperity started with a pink slip. In 1989, they were managing the trucking operation for a Manitoba fertilizer producer and the company divested its fleet. Out of work, the brothers borrowed money and bought four of their former employer’s bulk trailers and day-cab tractors. Today, their company has 38 power units, a fleet of bulk trailers, 60 employees, and annual revenue “in the high $30-million range,” Mike says.

But Mike and Martin, who asked that their real names be withheld, are facing some decisions. Mike is 51 and wants financial security for retirement. Martin, 49, got treated for bladder cancer last summer. They have no succession plans and the heavy workload has the pair wondering whether they own the business or the business owns them.

They know that a handful of large, publicly traded companies — Transforce, Contrans, Trimac, Mullen — are snapping up smaller trucking operations. Then there are private sales that never make the papers. Mike and Martin see a sale as their best exit strategy and as a way to lower costs and add capital that can help the company grow.

Last summer, they took their closest advisors on a fishing trip in Saskatchewan. “We got together with our accountant, corporate lawyer, and three friends who always have been a good sounding board for us,” Mike says.

The group discussed selling the business. Is it what Mike and Martin really want? How much money would they need to retire? Are they willing to stay on for a few more years and manage the business? The financial statements sat stacked on a table in their cabin. No one wanted to see them. “We were disappointed,” Mike says. “We thought multiples and financials mattered.”

They do. But in terms of making a business valuation, financial statements are wide open to interpretation. Sellers tend to focus on annual earnings before interest, taxes, depreciation, and amortization, (EBITDA) because most company valuations are expressed as a multiple of earnings. When you hear that your competitor sold his business for three times EBITDA (or whatever), it’s natural to think that your company is worth approximately as much — even though you’ve never seen the company’s books or stepped foot inside its offices.

For most buyers, EBITDA is a starting point for determining a more important number: free cash flow. Free cash flow is a function of profit and it points to your company’s potential to make money. The buyer probably will take your EBITDA and subtract the minimum amount of new capital expenditures required each year. The result indicates how much cash the company generates after covering its operating costs and expenses, but before paying what it owes in taxes and interest and before deducting depreciation and amortization.

No matter what dollar-figure you hang on your for-sale sign, a prospective buyer is going to conduct his own assessment of your financial records, define how your operation would contribute to his company’s success, and gauge how quickly a deal could be closed.

If you sold all your trucks, trailers, and land
tomorrow, what could you get for it?

Of those three items, the one you have the most control over is speed.
In a buyer’s market, the prospect of a speedy transaction can set your company apart from hundreds of others. When someone says, “I’m interested, please email me a prospectus,” and you get back to them that afternoon with a concise, complete package, it says you’re serious.

Reaching that point, requires months — perhaps a year — of intense work.

In the meantime here’s seven areas to focus on:

CLEAN UP YOUR BOOKS. Give your business (and yourself) a financial gut-check. Stop running personal expenses through the company. Get family members who are non-essential to the business off the books. Make your financial statements as transparent as possible.

Invest in audited financial statements. Your suitor is probably publicly traded or has private investors and needs to audit his financials. You can save time if you can produce two years of audited financial statements.

APPRAISE YOUR ASSETS. If you sold everything tomorrow — the trucks, the trailers, the buildings, the land — what could you get for it? Have your commercial assets appraised, or at least review the activity at the local auction house and find out what your stuff is really worth.

RECOGNIZE CUSTOMER VALUE. Prepare a list of your core accounts, including how long each has been a customer, who the key contacts are, and the nature of your relationship with them. Do you have a broad, diverse list of customers? Which do you consider to be major accounts, and what percentage of sales does each represent? Are you doing anything unusual to retain them (deep discounts, specialized equipment, etc.)? One trucking company owner compiled a brief video of his top customers describing how tightly integrated his trucking company has become with their get-to-market strategies.

COMPILE UTILIZATION REPORTS. Produce as much hard data as you can, including empty and loaded miles, deadheads, and revenue per mile.

LIST YOUR DRIVERS & O-O. Identify everyone including age, tenure with company, and any special endorsements. Make sure your files are complete, including accident and violation disclosures, abstracts, results from annual fitness reviews, and reports of any corrective disciplinary action. Verify the independent status of any leased drivers and owner-operators. Include a signed independent-contractor agreement, maintenance and fuel receipts, tax records, truck financing contracts, etc.

BUILD YOUR SAFETY PROFILE. Your buyer will want to be assured that your operation presents no undue liability to his company. Invest in a rigorous compliance program and facility audit (or a mock audit) as far in advance of putting the company on the market as possible. Pay particular attention to HOS violations and equipment out-of-service conditions. Review the inspections, accidents, moving violations, and other enforcement actions that affect your carrier safety profile.

Any prospective buyer will see your insurance costs as an opportunity for savings because he probably has better leverage with his underwriters.

HIRE A BUSINESS BROKER. A buyer has no passion for this little jewel you’re trying to sell beyond what he sees in the prospectus. It’s no big deal for him to lay off Merle in the admin pool. He’s going to change your insurance program, ending your 20-year relationship with your local broker/friend from high school. And you — on a two-year management contract — will be there to watch it happen.

A good business broker will prepare you for this before it happens. The point is, one of the hardest parts about selling your business will be seeing somebody put a price on all that love, sweat, and tears you put into the business. Don’t be afraid to get help.