Like most shoppers, transportation business buyers are often conditioned to look for a “steal.” But while finding a killer deal might be beneficial at the supermarket, it can backfire when buying a limousine business. It’s an understandable attitude to want to limit cost and risk, especially in a tough economic climate. But in the process, buyers also limit their options. There is more to how to value a limousine business than meets the eye. Being open-minded can result in finding companies that may cost a bit more, but offer far more long-term value.
Time is money
Sellers tend to be very attached to their businesses. It makes sense, considering many built their companies from the ground up. No matter what the economic atmosphere, most sellers are unlikely to let their companies go for any less than fair value. Just like in the real estate world, tossing out a low-ball offer can be offensive enough to push away a potentially receptive seller. Waiting around for a business owner desperate enough to accept an offer below market value is a waste of time for both parties. In the same period of time, chances are you will pass up multiple opportunities for a fairly-valued business with far more potential for return on your investment.
Price and value
The relationship between price and value is often misunderstood. Many owners assume that buying a chauffeured transportation company for a low price means they are getting high value, when just the opposite may be true. Price can be arbitrarily assigned. Value, on the other hand, is based on actual assets and cash flow. It can include not just what a business is worth today, but what it may be worth tomorrow. As Warren Buffet once famously postulated, “Price is what you pay, but value is what you get.”
The Long Run
In the end, the cost savings of purchasing a quality company far exceed those of buying a cheap one.
Every purchase has an ultimate cost, and that goes beyond the initial price. There is always a catch to a rock-bottom deal. When you go after that so-called steal, will it require that you rebuild the existing management team or enact major employee training efforts? Must you add new drivers or certify current ones to meet industry regulations? With so much rebuilding, you may as well have started your own limo company from scratch. Acquiring a stable, valuable company, on the other hand, can be well worth the price – even if that price is higher. It’s a win-win then for seller and buyer.