subject: Andre Ahern Explains the Reality of the Trucking Business Today [print this page] Andre Ahern Explains the Reality of the Trucking Business Today
Today, many different trucking and logistics companies can't service their debt, the banks won't loan them additional working capital, and to complicate matters, their personal net worth,, for all practical purposes, has evaporated.
Obviously, these individuals are looking for solutions to their challenges.
Unfortunately, when I provide a solution to a problem, the seller (in many instances) doesn't like the solution. Therefore, I felt it appropriate, to discuss; not only market conditions, but the financial condition of the economy.
First and foremost, if you have owned a business for a substantial amount of time, have had several years of operating losses and your company is currently not making money, the value of your business is negligible.
If you're an asset based business and you have values in your assets, then tractors and trailors will normally be purchased at orderly liquidation value. Nine times out of ten, a customer will not purchase your terminal, but may lease it if there is a need abd you will liquidate your balance sheet, consisting of assets minus liabilities.
Anything left, after liquidating the balance sheet is yours to keep.
For many of you, this is not the solution you are looking for, but what is? I recently received a telephone call from a company that was hemorrhaging. They hadn't made money in 3 years, weren't making any money this year. I offered them a specific opportunity in which they could liquidate their balance sheet where the customer would purchase the tractors and trailers at liquidation value, set the company up as an operating division, and provide the Seller a percentage of the profits going forward.
Unfortunately, the seller had many personal financial challenges and stated the deal wouldn't work. When I asked the seller what his options were, he had none. This is the most difficult part of the process; when your company is struggling; when you can't service your debt and when there seems to be no light at the end of the tunnel, you need to look at your options realistically.
Is someone going to pay you millions of dollars for a business that isn't generating profits? No!
Will a Buyer pay a Seller based upon savings that will be recognized after an acquisition? No!
I don't like having these conversations, because I understand what many of you are going through. However, something is better than nothing. I've stated, on numerous occasions, this is the worst economy I've experienced in my 40 years in transportation; the economy is not getting better!
Trucking is getting better because of capacity issues, but if you can't make money in trucking this year, then you're not going to make money, any time, in the near future.
A double dip recession is looking more likely. Among indications, is consumer confidence is no higher than it was two years ago (a major problem) since consumer spending accounts for roughly 2/3 of U.S. GDP. Chief among consumer worries, is the (still) miserable job market. Temporary workers hired for the 2010 census are coming off the payroll, adding to those looking for work. Additions to private payrolls have been meager, while wage growth has been anemic and the average number of hours worked per week is just marginally above the worst ever low set last October.
With these trends keeping consumers fearful, saving rates have remained elevated relative to American's prior spend thrift ways. As consumers save for rainy days, a double dip recession could become a self fulfilling prophecy.
The purpose of describing the economy is Transportation and logistics companies that are looking to buy companies are normally looking to purchase companies that are successful, have market share, and have growth opportunities.They're not interested (normally) in buying struggling companies and fixing them and you must recognize that no one is going to get you out of your financial mess and pay you a premium.
If you can't fix your company, find somebody that can!
Don't procrastinate.
Don't wait, and;
Do something as soon as possible.
I cannot begin to tell you how many people call me, on a daily basis; that I offer options to and they don't like the solutions. For example; I recently received a telephone call from a freight broker. This was a broker that was making negligible profits where the owner's skills were in sales and marketing. He desired to grow his business model he wanted someone to take over the back office, and he still wanted to own his business, and he wanted to double his income.
Would you believe I found such an opportunity? Then he changed his mind. Somebody threw him a bone and he thought that bone would solve his problem. But it won't; just the opposite is going to happen:
With growth leads additional overhead, (in many instances), plus additional challenges and that's exactly what this individual wanted to eliminate.
Currently, the financial markets are not stable; the economy is not stable, and there is going to be a further (substantial) fall out in commercial and residential real estate. When you take those things into consideration and if you're tired of the business, you want to get out of the business, and you can get something for the business, it allows you some security; and security, today (for baby boomers particularly) is "the name of the game".
In closing, there are many opportunities available if your company is struggling, you're willing to do an earn out and you're willing to be creative, then you can still sell your business.
However, if you want someone to give you a lot of money for a non performing business and then you will prove yourself, after the fact, it's not going to happen. Next week, I will discuss the negotiation process and the pitfalls of not understanding the complexities of the deal.
