By - Jeremiah Grant
Last Updated - December 27th, 2023 8:52 PM
Dec 27
Trucking companies are always interested in knowing the market value of their business. And unsurprisingly so, as, with cut-throat competition and ever-changing industry landscape, both survival and success of the business go hand in hand.
This is especially true for the smaller players, who, despite making the most of the country’s over 570,000 trucking companies, are often at the margins.
So, if you’re one such entrepreneur looking to buy, sell, or simply stay profitable, you might find yourself asking, ‘What is a small trucking company worth?’
Simply speaking, evaluating a trucking company can be complex, especially in the face of market fluctuations.
Nevertheless, with the right approach, accurate multiples, and professional company valuation service, it’s possible to calculate how much your trucking business is worth.
And that’s exactly why I’ve compiled all the approaches and methods that I’ve used to evaluate truck companies. Also, I’ve listed all the best practices that I follow to derive an accurate and undisputable valuation. So, let’s jump right in and see how you can evaluate your trucking business.
Valuing your transport company and keeping yourself up to date with its fair market value is essential for a number of reasons. That’s because from selling the business to buying another company to raising capital to negotiate an exit, and more, you’ll need a valuation report for just about everything.
Now, when it comes to valuing your trucking company, there are various valuation approaches that you can resort to.
In fact, based on the approach you choose, you’ll likely get a different value for your company. For instance, while the earnings approach may result in a lower valuation, you might get a higher valuation using the asset approach if your company owns a lot of assets.
As such, it is essential to choose the right approach after factoring in your business’s existing conditions.
Wondering what these valuation approaches are and how to value your truck business using them?
Well, let’s have a look.
1. Asset approach
The asset approach is a commonly used valuation method that calculates the total value of all the company’s assets minus its liabilities. And for trucking companies, this is a very practical method, given the large number of trucks and trailers they own.
Not to mention, the asset approach can be very useful for valuation at a time when your company is not profitable. After all, it’s your total tangible and intangible assets that determine the company’s value and not the balance sheet.
Curious about how you can use this approach to evaluate your truck business?
2. Market approach
A common method used in determining the value of trucking companies is the market approach, which uses data from businesses of similar size to derive a fair market value.
In all, the idea is to determine how much a seller might be willing to pay for your company based on comparable data from the industry.
However, this approach isn’t without problems, the least of which is the lack of comparable companies.
For instance, when valuing small trucking companies, I’ve often noticed a lack of reliable data for comparison. This is because the publicly available comparables are either from large trucking giants or they’re outdated, neither of which is relevant for a precise valuation.
3. Income approach
The income approach is popular among businesses and individuals as a realistic valuation method. Moreover, this approach is highly sought after by such entities who are looking to acquire businesses, including trucking companies.
Ask why?
Well, the income approach looks at your company’s present-day earnings and cash flow and provides real-time valuation based on the same. Also, it helps project the future earning potential and the level of risk involved based on current revenue.
Furthermore, a lot of valuation multiples used to evaluate trucking companies are based on the income approach. In fact, I’ve dwelled upon these valuation multiples below in detail and explained how you can value a trucking company using them.
Own a small restaurant instead that you want to evaluate?
Trucking companies are a complex lot to evaluate, and for obvious reasons as they operate in a fluid and uncertain marketplace.
You see, from a diverse and ever-changing fleet to fluctuating fuel prices to competition on the market and more, there are countless factors that influence your truck company’s worth.
Nevertheless, by using an appropriate valuation multiple and accurate figures of your company’s past and present earnings, you can determine a 100% precise valuation figure.
But before we start applying these multiples, you might well be curious what are the valuation multiples for a trucking company.
So, let’s understand the basics of valuation multiples first.
What are the valuation multiples for a trucking business?
Valuation multiples, in the simplest terms, are financial metrics used to derive the value of any business. It takes into account various income streams of a company, including earnings and revenue, sales, cash flow, etc.
For instance, I often use EBITDA, SDE, and revenue multiples to value small businesses, including truck companies.
Here’s what each of these multiples are all about:
EBITDA multiple – It is a business valuation metric that evaluates a company by measuring its ROI.
SDE multiple – it determines the overall cash flow of a company and is applied to a business’s SDE.
Revenue multiple – it compares the market value of a business to its yearly revenue.
Now, each of these multiples seeks to answer the one question that I am always asked: ‘How much can I sell my trucking company for?’
However, based on the valuation multiple you choose, you’ll get an entirely different value for your company. As such, it is essential you understand the application of each of these multiples and choose one very strategically.
How to use valuation multiples to value a trucking company?
Calculating the net value of your small to medium-sized truck business using the popular multiples is quite straightforward. But for an accurate estimation, it is important that you have the right information about your business’s overall revenue.
Wondering how you can apply these multiples?
Well, here’s how you can use company valuation multiples to evaluate your company:
1. EBITDA multiple for trucking business
EBITDA multiples compare your company’s enterprise value (EV) to its annual EBITDA or Earnings Before Interest, Taxes, Depreciation, and Amortization. It uses a comparable approach to analyze and evaluate similar trucking businesses using the same metrics.
The goal here is to accurately measure your company’s return on investment. And to do so, the EBITDA multiples normalize any difference in capital structure, fixed assets, and taxation.
The result is a normalized ratio that takes your business’s enterprise value (EV) and compares it to the EBITDA over a given duration of time.
Complicated as it might sound, the EBITDA multiples offer a normalized ratio of comparison, which especially comes in handy for trucking companies.
How to derive an EBITDA multiple?
Getting an EBITDA multiple for truck company valuation is simple; all you’ve got to do is follow this formula:
EBITDA multiple = Enterprise Value (EV) / EBITDA
How to calculate the value of your company using the EBITDA multiple?
Once you’ve derived an EBITDA multiple using the above formula, you can multiply the EBITDA by the multiple and obtain the value of your company.
The EBITDA multiples for small trucking companies often range between 3x and 3.8x. Now, if your company’s EBITDA is $590,000, you can take an average multiple from the above range and multiply it by 590,000.
For instance, if I am valuing your business, I’ll take an average multiple of 3.6 and multiply it with $590,000, thus getting a total value of $2,124,000.
EBITDA X EBITDA multiple = Total business value
$590,000 X 3.6 = $2,124,000
What is the advantage of using EBITDA multiple for truck business valuation?
EBITDA multiple is known for providing a precise valuation figure based on the financial performance of your company. Also, it removes taxes, depreciation, debt costs, etc., from the equation, thus eliminating redundancy and offering more contemporary data.
In short, it is a win-win for both buyers and sellers since both parties can easily come to an agreement about the total value of the company.
What is the disadvantage of EBITDA multiple for small truckers?
Despite being the gold standard of valuation, EBITDA multiples are often criticized for being too complex and not relevant for the trucking industry.
For instance, EV and EBITDA for small trucking businesses may not be easily available. Similarly, you can’t compare your business to the large fleet operators whose data might be accessible.
Furthermore, I believe the fact that the EBITDA ratio doesn’t include capital expenses results in a lower valuation multiple. That’s because trucking companies incur major capital expenses on a daily basis to operate their fleet.
2. SDE multiple for trucking company
Before we get to the SDE multiples for valuation, it’s important to understand the SDE or seller’s discretionary earnings on which the multiple is based.
To find a business’s SDE, I determine its total earnings before all taxes, interests, depreciations, amortizations, and expenses. This eventually reflects the total financial benefits or discretionary earnings of a business owner.
Talking about SDE multiple, it is a number used to multiply the SDE in order to obtain the total value of a company.
This is a common multiple for valuing businesses with a class flow below $1 million, which also applies to small trucking companies.
How to determine the value of your truck business using SDE multiple?
To calculate the value of your company using an SDE multiple, you’ll first need to pick an average multiple based on your total SDE.
Here are some average SDE multiples for small trucking businesses based on their SDE:
SDE SDE multiple
$350,000 – $500,000 2.4x – 3.0x
$500,000 – $1,000,000 3.0x – 4.2x
Now, if you’re a truck company owner with an SDE OF $670,000, I’ll take an average SDE multiple 3.3x and multiply your SDE with it. This will give a total value of $2,211,000 for your business.
SDE X SDE multiple = Total business value
$670,000 X 3.3x = $2,211,000
What are the advantages of SDE multiples for small truckers?
Trucking companies with a cash flow below $1 million commonly use SDE multiples. That’s because they offer a simplistic and error-free valuation figure for such businesses.
Also, since SDE multiples eliminate non-operating variables and non-cash expenses that don’t impact the buyer, buyers find it to be a go-to valuation method. After all, this allows buyers to make their own estimates about non-cash expenses and deduct the same from cash flow.
Lastly, SDE multiples allow for comparison among smaller businesses, thanks to the method’s popularity. This is not possible with EBITDA multiples.
What are the disadvantages of SDE multiples for trucking companies?
While smaller trucking businesses highly prefer SDE multiples for valuation, it is often criticized by buyers for its lack of accurate cash flow measure post-acquisition.
You see, for reasons including taxes, depreciation, amortization, and working capital, SDE cannot accurately measure cash flow after you’ve acquired a business.
Bonus: EBITDA and SDE multiples are also advantageous for laundromat businesses
Revenue multiple measures the value of a truck company relative to the total revenue that it generates. It is simple to calculate, as all you need to do is divide your company’s enterprise value by its annual revenue.
How to calculate the value of your truck business using SDE multiple?
To calculate the total worth of your business, you’ll first need to determine a revenue multiple.
As per the latest market estimates, the revenue multiples for small-sized trucking companies range between 0.25x – 0.75x. So, you can simply take the annual revenue of the business and multiply it with an average revenue multiple to know what is a small trucking company worth.
For instance, if the annual revenue of your business is $1,800,000, I’ll take 0.56 as the average multiple, valuing your company at $1,008,000.
Revenue X multiple = Total business value
$1,800,000 X 0.56x = $1,008,000
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What is the advantage of using the revenue multiple?
The revenue multiple is particularly beneficial for such trucking companies that are incurring losses or not making significant profits but hold major growth potential.
For instance, if you’ve got a startup with a small fleet and less frequent operations, your business is likely to be valued higher when using revenue multiple.
What is the disadvantage of revenue multiple for truck company valuation?
Among all 3PL valuation multiples, the revenue multiple holds the highest levels of uncertainty for buyers. That’s because the idea of future growth potential is highly doubtful.
For instance, a trucking company with lower profits but high future profit potential can also end up making losses due to operational changes and market fluctuations, among others.
As you can see, the question as to ‘what is a small trucking company worth’ has no definitive answer. In fact, the worth of a trucking company will change with different valuation multiples. So, whether you’re a buyer or a seller, it is essential you go for a valuation multiple that’s reliable and provides the highest accuracy.
For instance, EBITDA multiples are known for offering valuation figures that are hugely accepted by both buyers and sellers.
Similarly, for small businesses, there’s nothing more simplistic than SDE multiples.
Looking to know how much you can buy or sell a trucking company for?
You get in touch with us! At Arrowfish Consulting, we’re a team of valuation experts with 200+ years of combined experience and hundreds of successful valuations under our belt. So, whether you’re a one-person company or a large fleet operator with thousands of trucks, we’ve got you covered.
Jeremiah Grant
Jeremiah Grant is the Managing Partner of Arrowfish Consulting. In addition to acting as a primary liaison for many of the firm’s engagements, He primarily focuses on business valuation and economic damages expert witness assignments, in addition to forensic accounting and insurance claims analysis.
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