The individual planning to buy a towing business with the expectation of receiving a good return on investment should understand a few key facts about the opportunity. Vehicle towing is a highly competitive business with some characteristics not found in other types of businesses. Among the most important aspects to understand when considering a company being sold in the towing industry are:
1. Characteristics of market served: Chief classifications of towing businesses are the private companies often associated with service stations and providing roadside assistance to individuals, and enterprises that work for parking control departments of local governments. A third type of business serves the commercial market, such as pay-to-park lots and businesses, churches and other enterprises that need to remove cars parked without permission on their property. It's important to know, incidentally, whether the business being offered has contracts with its customers or is affiliated with a roadside service such as AAA. Another key factor to consider when offered a tow company with government customers is whether all or most of the business comes from just a few government agencies. If there are only two or three different government entities using the service, for example, and even if they have a contractual relationship, the towing firm is vulnerable to the loss of a substantial portion of its income if political reasons cause one major client to discontinue the relationship.
2. Whether property is included: At least half of the 8,500 towing companies in the U.S. involve an unimproved""or slightly improved--lot where towed vehicles are stored. In some cases, the business is offered with the property and in others the seller plans to keep the real estate and rent it to the new owner of the business. The prospective buyer must fully understand the details about the property in order to determine the value of the tow business, how the purchase can be funded, and whether the business can support the cost of purchasing land along with the towing enterprise. If an investor wants to avoid the purchase or lease of a storage property, it's best to focus on towing companies for sale that don't need extra vehicle space. One example is the firm that works for municipalities and delivers towed vehicles to the customer's storage lots. Another is the company that tows disabled vehicles to repair facilities.
3. Age, book value and condition of assets: As tow vehicles can rapidly decline in value it's important for a prospective buyer of the business to calculate the remaining life of the capital equipment offered and determine how the replacement cost and scheduling will affect the company's earnings. Sellers often claim that depreciating equipment on the books is a great write-off, representing non-cash expense to be added back to the bottom line. But the ongoing need to replace equipment in this business means that funds allocated to the depreciation category actually must be spent on physical upgrades so the company can maintain its ability to perform its services.
4. Additional businesses: It's common for a towing company to have related sources of revenue, with enterprises such as auto repair, vehicle storage and parts dismantling. When considering an offering with additional businesses, the prospective buyer must determine if he or she has the ability and desire to manage any enterprise connected to the towing business. Someone who feels capable of running a towing business successfully, may be at a loss as to how to manage a business that repairs vehicles or dismantles them for parts to be sold.
5. Business valuation: While there are rules of thumb to help a seller and buyer to determine the market value of a towing company, so many factors can impact the value of a company in this industry that the short cut valuation methods often are not very reliable. The buyer may hear that the industry valuation rule uses a multiple of 2.75 calculated with the seller's average annual earnings total before deductions for interest, taxes, depreciation and amortization (EBITDA). Another familiar approach is to add a figure that is 70% of average annual revenues plus the cost of inventory. Perhaps the best way for a buyer to value a towing business is to consider the value of the business separately from the property and assign a valuation to each. Then determine whether those values correspond to the buyer's expected return on investment, measured by business earnings and after tax capital gain expected with the real property.
Whether or not the purchase of a towing business for sale represents a good investment depends on the expectation of the buyer, the value and condition of the assets and market position of the business and any related enterprises.
About This Author: Peter Siegel, MBA is the Founder & Senior Advisor (ProBuy and ProSell Programs) at BizBen.com (established 1994, 8000+ California businesses for sale, 500 new & refreshed postings/posts daily) he consults daily with California owners/sellers, brokers, agents & intermediaries. Reach him direct at 925-785-3118 to discuss strategies buying or selling a California business.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence
Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.
|Rob Hartman: Business Broker, SF Bay Area
Business brokerage services in the SF Bay Area. I bring skill, integrity and energy to all of my clients and our projects. I'm accustomed to working with a wide variety of clients and their businesses; large or small, simple or highly complex. Get a free consultation by phoning 650-279-3097.
|Harry Sidhu, CBB, Broker: SF Bay Area, Central Valley, SAC Region
Assisting both sellers and buyers of businesses - dealing mainly with Liquor Stores, Grocery Markets, Gas Stations, Smoke Shops, Restaurant Related, Retail Related, Service Related. Serving SF Bay Area, North Bay, Sacramento area. Call Harry Sidhu, CBB for assistance at 510-366-6130.
|Christina Lazuric CBI CBB, Business Broker: Orange County
Premier Brokerage for Selling Orange County Service Based Businesses since 2005! C.B.B. provides a step by step approach to Business Brokerage, Mergers & Acquisitions, Business Consulting and Valuations. We work on creating the best possible presentation for your business! Call today 949-257-7823.
|William Park, Business Broker - Southern California
Highest Volume Broker in California, Simply Check our HUNDREDS of Listings! Over 25 Associates, Speaking Dozen Languages, Helping Buyers and Sellers of Small Business since 1982, Centrally Located between Los Angeles and Orange Counties, while Riverside & San Bernardino Counties are Very Accessible.
|Timothy Cunha JD, Business Broker: SF Bay Area
Experienced attorney, & business broker. I & my EvergreenGold team offer owners sound advice & expertise to build business value & achieve profitable sales. Call me today for a FREE business evaluation & SWOT analysis for your business. Call 650-600-3751 or 650-866-5393 Text.
|Shalonda Chappel-Pilgram: Escrow & Bulk Sale Services - Southern California
Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.
|AJ Rana - Business Broker, San Francisco Bay Area
Professionals who understand the importance of world class business brokerage service and the value it can create. Specializing in assisting sellers and buyers with retail stores, restaurants, hospitality & lodging, manufacturing operations, distribution companies, e-commerce and service businesses.
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