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Why a Weak Economy May Increase the Value of Your Business

Over the past year or so, many owners of transportation businesses have witnessed the value of their companies plummet 10%, 25%, or more. However, the value of your business today may be the highest it has been in years, as surprising as that may seem.

To understand why this is, it’s helpful to be aware of potential buyers of your transportation business and how they may value your business’ assets.

Generally, two types of buyers operate in the transportation business marketplace. A financial buyer will establish the value of a business based on the “stand alone” financial health of the company and its ability to provide a return on investment. A strategic buyer will value a business differently; this buyer evaluates the potential for creation of new cash flow, how efficient the business is, and how well the acquired company would integrate into an existing company.

Currently your business may be attracting lower offers from financial buyers than it was a year ago. This makes sense from a financial viewpoint – your business is most likely weaker this year as a stand alone operation. But when viewed from a strategic buyer’s perspective, your offers may have substantially increased over the past year. Why is this?

The reason is found in the fundamentals of supply and demand. As more competitors leave the transportation market, either through acquisitions or failures, the remaining companies’ value increases. Businesses struggling to cope with lost revenue have two options to establish new cash flow: Grow the company organically or through acquisitions.

There’s no right or wrong approach. Time tends to be the major difference between the two. Acquisitions produce an immediate effect; organic growth is a gradual process. Time is in short supply for most companies, leaving many business owners to choose the path of acquisitions. Strategic buyers are tempted by the opportunity for a quick solution to slow or stop revenue loss, even it means they have to pay a higher price upfront for the company.

Thus, the stand alone performance of your company’s finances may carry far less weight with buyers than you think. Your accounts are very valuable today for businesses seeking any way to recoup lost revenue streams. Remember, strategic buyers of transportation businesses will assess the potential of your company for the future, not just your recent performance.

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