The towing industry is incredibly stable and continual growth is expected among experts. The strength of the towing industry makes it a great time for owners to sell for excellent value. In this review, we discuss how to value and sell your towing company for fair market value or greater.
About The Towing Industry
The towing industry has performed exceptionally well in recent years. In fact, it is one of the most recession-resistant industries, and the numbers support this. Here are the most recent industry numbers:
- There are approximately 45,000 towing companies in the U.S.
- There was a 2.6% annual growth for the towing industry from 2018 to 2023
- The towing industry generates $9.9 billion in annual revenue
- The annual profit for the towing industry is $857 million
- Experts predict a sizable increase in annual growth (1.9%) from 2023 to 2028
However, technical knowledge of the towing industry is usually required as it allows the owner to recognize talented drivers, procure contracts with law enforcement, property owners, etc., and ensure the company remains up-to-date with all licensing requirements.
How to Value a Towing Company
You should first receive a professional valuation with a market approach from a qualified business broker. They can help you determine the value of your company, which allows you to plan when and for how much you list your company for sale on the market.
So, what goes into a market approach? Ultimately, the goal is to determine how much a fair and reasonable buyer would pay for your towing company. Similar to a real estate appraisal in which comparable sales are considered, your business broker will also use what is known as rule-of-thumb data. These are calculated averages based on sales within your industry. Specifically, rule of thumb data is applied to your EBITDA, SDE, gross profit, net income, and similar financial metrics. The rule of thumb data for the towing industry is as follows:
- Towing companies sold between 3.00 and 3.23 times the Seller’s Discretionary Earnings (SDE)
- Towing companies sold between 2.54 and 4.71 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Towing companies sold between 0.65 and 0.88 times the annual net sales
How to Sell a Towing Company
It helps to break the process down into stages, although there are many steps and complexities involved with each stage. Of course, a personalized approach is strongly recommended to ensure the full value of your company is on display. Notably, the stages that you can expect and prepare for include:
- The planning stage
- The offer stage
- The negotiation stage
- The due diligence stage
- The closing stage
The Planning Stage
Once you are happy with your valuation and decide to move forward with the sale of your towing company, then you should take the time to plan your exit strategy. In doing so, consider the following questions:
- What are your exit strategy and sales goals?
- What do you want your future to look like long-term after you sell?
- How involved am I willing to be to assist the buyer with ownership transition?
- Do I have all of the documents I need for the sale?
You will need to provide the buyer with your financial, legal, and operational documents during the due diligence period (see below). Your broker can assist you with determining which documents you need to collect.
In general, you will need your federal tax returns (and other financial documents such as profit and loss statements), a list of your assets and inventory with values for each (i.e. list of all of your towing trucks) and legal documents such as your business license for towing.
The Offer Stage
Once you have all of your documents in order, then your broker can begin receiving and screening offers for your company. They do this by advertising your company via private channels, such as private databases and connections they have developed.
For this reason, we recommend an experienced broker as they are likely to have a far more extensive list of potential buyers they can reach. You may receive dozens of offers, in which case screening them is important to ensure you only spend your time negotiating with buyers who can follow-through with their offer and will continue your vision.
The Negotiation Stage
Your broker will also facilitate negotiations on your behalf as well. Of course, this is along with your input, and they should keep you informed and involved through the process. Negotiations are not just about getting the potential buyer to come up on their offer price or creating competition to raise bid prices.
Although these are certainly involved, it can also involve creativity. For instance, if a buyer makes a great offer but is not sure if they can get financing, then finding creative ways for the buyer to complete the payments (i.e. seller financing) could be a part of the negotiations. Ultimately, you will accept the offer you feel is best and secure a deal with a signed letter of intent (LOI).
The Due Diligence Stage
After a signed LOI, the buyer has the right to review all details of your company. This involves a review of your company’s documents, specifically the one that was prepared during the planning stage. They may request additional documents as well. Moreover, the buyer may request a visit to your facilities, or they may even want to ride along with your employees to see how the towing process works. Ideally, your business broker should have a due diligence roadmap that helps ensure the process moves along smoothly.
The Closing Stage
A closing date may be established in the LOI, or the buyer and seller may find a time only after due diligence is complete. During closing, the buyer and the seller, along with their respective attorneys, review the purchase agreement and both parties sign.
The buyer then completes the payment; this may involve a release of funds by the escrow agent. Once the payment is confirmed, the transition process begins. After the business is entirely in the buyer’s name and they have full access, the training process starts and continues as outlined in the purchase agreement.
Sigma Mergers and Acquisitions Can Help You Sell Your Towing Company
Are you considering selling your towing company? If so, then consult with our experienced business broker at Sigma Mergers and Acquisitions. We can provide a no-cost and no-obligation business consultation to help you start planning your exit strategy. So, why wait? Contact us today to get started.
