Pub. 1 2020 Issue 1

Kentucky Trucker 25 KyTrucking.net accurately state the financial strength and position of my business? Three to four years of these documents will give the owner a thumbnail sketch of the company’s worth. EBITDA Determining the value of your business is generally based on cash flow. That is earnings before interest, taxes, depreciation and amortization. We look at EBITDA or cash flow for those three to four years and then come up with a one-year average. A mul- tiplier (a number indicating the business sector’s future cash flow) is then applied to the cash flow, and this will give us a preliminary thumb nail view of the value of your business. For example, in the Transportation Industry that multiplier can be 6 to 8 times EBITDA. Value of Your Assets Next, the value of the company’s assets is considered. If the business has hard assets such as fleets, equipment or real estate: how new are they? Have they been well maintained and how do they operate? As a buyer or an investor, I need to know how much more capital may be needed to maintain the business and keep it growing. Do I need to get outside professional appraisals on my assets? Will equipment need to get replaced soon? If I have a large truck or van fleet, what is the mileage and aging of the fleet? Does mandated technology need to be upgraded? How much money as the investor will I need to spend to upgrade or replace equipment or fleet? Contracts How many contracts does my business hold? Are they private or government contracts; state, local and municipal? When will they expire? The answers to these contract issues can significantly raise or lower the value of your business. Client Mix A mix of revenue sources affects value! How many clients or customers do you have? If a single customer generates more than 10 to 15% of the company’s revenue, this will have a negative impact on a business’s value. If a business is bought and that single customer leaves and revenue drops 10 to 15%, all or most of the profit has left the business. That’s one of the top things lenders look at very closely: What percentage do your customers represent as revenue? Location Location, location, location. A key location can add value. Enjoy the fruits of your lifetime labor!! Don’t let your business go up in smoke from a lack of planning. In summary, it’s never too early to start planning for your retirement and the legacy of your business. Seek professional counsel as to the current status of it, what processes and procedures need to be put in place and what options exist for you to extract value for your hard work into retirement. Acting now might save you value and frustration later.