Welcome to the next chapter. Is there really going to be a pot of gold at the end of the rainbow for you? In other words, are you going to be able to sell your business to someone?
Does The Exit Always Happen For Businesses?
There’s a bad piece of data from the association of business brokers that says 90% of businesses that are put up for sale, never find a buyer. So as business owners, we always think that someone is going to want to buy this thing that we call our business from us. And unfortunately the data tells us that’s really not true. In fact, many businesses never have a pot of gold at the end of the rainbow.
It’s because the Owner is the business. It’s that concept of Superman or superwoman that we talked about earlier on in CFF. You eventually you have to have a money machine that someone is willing to pay you for because they can get the same money from it and eventually turn it into theirs. So let’s talk about how an exit actually happens.
Finding Someone Who Wants Your Business
Number one, Many exits and transportation happen from a strategic buyer. It means that someone has a very strong presence on the east coast, and they want a strong presence in the Southeast, a stronger presence in the Southeast. And so they buy the best transportation company who dominates the Southeast. How do they even find out about you if you’re that company through your market leader, content, through your positioning, through your branding, through the fact that you are the best flatbed hauler of steel pipe in the Southeast for manufacturing companies that have 50 million and revenue and below the market knows about you.
The company in the Northeast or the east coast wants that presence and they buy you, what do they look for when they buy you? Number one, they want guaranteed revenue. They want to know what your contracts look like. Remember we talked about in a previous chapter about recurring revenue.
What’s Your Revenue?
They want to know how much of that revenue was guaranteed. What do the contracts look like? How long will the contracts be in place? They want to know what is the upside? What foundation have you built? That if they bring more money into more people, better technology, more equipment, better contacts that it can grow, right? They want to know what your management team looks like. Who runs the business. If you get hit by a bus, because if you think they’re going to just buy you, they might, but they won’t cash you out without you there. However, they might cash you out. If your management team has been in place doing a great job and your involvement is not in every nook and cranny, the business buyers want to buy a proven money machine. And the more proof you can give to them the better. How are your contracts?
How Are The Financial Statements?
How do your financial statements look? What is the management team look like? What is the culture look like? What niche do you own and dominate? How profitable are you? How much free cashflow do you have? What is the average age of your equipment? What buying discounts do you have that they may not have? Just to give you an idea. There are two methods for valuation of a company. The first is a multiple of EBITDA that’s earnings before interest taxes, depreciation and amortization for our customers and transportation. EBITDA is the right number because we have interest. We have a depreciation because we are capital intensive and we have to buy equipment. And so EBITDA is a number that needs to be determined in transportation. If you’re got, if you have good contracts and you’ve got a good brand and recurring revenue, you could expect somewhere between a three and a seven multiple for EBITDA.
That means if your EBITDA is a million dollars, your business could sell between three and 7 million. I know that’s a range, but the first thing you need to get to is a million dollars in EBITDA was $100,000. The odds are pretty slim that you’re even going to be able to sell your business. It just doesn’t create enough income stream for the buyer. It also exit doesn’t produce enough revenue for you or, or profit for you to ride off in