Financial Advice: What is my Business worth in money terms?

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Most transport firms in Ireland are family businesses that transfer from generation to generation, however in the current circumstances some companies are reviewing all options and while there may not be a natural successor present, business owners are looking at the best way to maximise business value. How can it be valued? Is there someone out there to buy it?  

As owner of the business the decision has to be made to sell all or part of the business. If selling part, will control be maintained? If selling the main shareholding back to the company, shareholders can progress the business further or if the shares are sold to new external shareholders the return from sale can be maximised and allow intake of new expertise into the business. A management buyout (where the full company is sold to key managers) or a management buy in (where a key employee joins as a director) are options in maximising the business value. Regardless of which option decided, it is best, and bearing in mind current tax law, a number of factors must be in place to maximise the potential benefits.

Transport companies tend to be difficult to sell and often materialise far less than what the owner expected. Here are 8 key factors in maximising the value of a transport business for sale.

1)      Strong profits that are maintainable. If the company has been profitable in the last three years and these profits can reasonably be expected to continue into the future, this will have a material effect on the value of the business.

2)   What are the current market conditions? If the business operates in a sector that is strong and not COVID-19 affected, a potential purchaser will pay a premium for this business, as opposed to a business which operates in a niche that is currently contracting or in danger.

3)    Level of competition. Road haulage is one of the most competitive industries in Ireland, however, some operators because of specialisation have found niches that reduce this competition to acceptable levels and so maximise the value of their business.

4)      Management Team. If selling the business, is there a strong management team in place so that there is an entity to sell, and self-sufficient. If all business knowledge and contacts are held by the boss, then any prospective buyer will demand that he/she continues with the business over a minimum of twelve to twenty four months, but perhaps not the ideal option for both parties.

5)      Positive Cashflows. Any prospective purchaser will look to see the ability of the business to handle repayment of debt. This is crucial in what will be paid for the business. Some business are profitable but weak cash flows due to poor financial structures.

6)   Asset Backing. If the Balance Sheet has assets fully depreciated but of real value (trailers and specialised equipment) naturally again the value of the business will be in excess of the book value. Even in the current crisis a full review of market value of assets is vitally important.

7)   Strong Performance Indicators. If the business provides excellent customer service, and can quantifiably demonstrate this, perhaps as industry award winners, plus the fact that key costs are controlled and margins are above industry average, this again contributes to business value. If the business has externally monitored and confirmed quality and compliance standards again this increases business value.

8)   Retain the services of a specialised consultant that will maximise the value of the business and pin-point potential purchasers so that synergys of operation can come into play to maximise real value. Donal Dempsey