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Timely Trucking will establish its business with three trucks and a launch financed by the owner and investor’s equity. Starting debt-free will enable the business to take on debt once it has established cash flows to purchase additional trucks over the first three years. Profits will swing positive in the second year after a loss in the first year.
After the first three years, the business can sustain growth of at least three additional trucks per year, and begin to add additional bases of operation throughout the region so that truck drivers who do not live in the Portland area can be hired and trucks do not have to return to this base after all jobs.
Dividends will not be paid out, as cash will be used in the business to prepare for expansion to additional offices and purchase equipment on better terms going forward. After five years of operation, the business will seek a strategic sale to a national freight trucking operator for which Timely Trucking’s geographic and technological focus will be a good match.
Jim Kerrigan will provide the majority of start-up funding out of savings from the sale of his previous business. Additional investment will be from investing partners who will be granted 20% of shares in the business for their investment.
The business assumes the cost of fuel at an average of the past two years, slightly higher than today’s fuel prices. This is considered a conservative estimate as it is possible that fuel will stay below this number during at least part of the start-up phase. However, if fuel becomes significantly more expensive, the gross margins of the business will drop.
The break even point is shown in the table and chart, below.
Projected Profit and Loss
Major expenses include:
- Payroll: Covers the management, staff, and truck driver wages (when not directly attributed to jobs)
- Marketing/Promotion: Projected higher in the first year and then dropping due to extra marketing devoted to the launch and the weaning off of search engine marketing over time
- Depreciation: Reflects the growing investment in trucks and equipment over the years. Trucks are depreciated on a 10 year straight-line schedule. The depreciation is $1,250 per month per truck or $1,458 per month including the additional equipment purchased with each truck. The business will grow from four trucks at the end of year 1 to six at the end of year 2 to eight at the end of year 3.
- Truck Maintenance/Repair: Estimated at $200 per month per truck to start and rising to $225 in year 3 due to aging of some of the first trucks purchased.
- Rent & Utilities: Projected to rise slightly due to inflationary increases
- Insurance: Will grow with the number of trucks and size of operations
- Payroll Taxes: Applied to payroll as listed and half of the direct cost of sales (truck driver wages)
- Licensing and Permitting: Include ongoing renewals of licenses and additional licenses for new trucks as they are purchased
The business expects a net loss in the first year as operations and sales scale up appropriately. Net profits will begin in the second year.
Projected Cash Flow
Purchases of new trucks will be made with 3 year loans for 90% of the purchase price. The remaining $25,000 plus $25,000 in additional equipment (forklift, etc) for each purchase will be made in cash. Payments on these loans will be $3,750 per month, per truck loan for the life of the loans.
One additional truck will be purchased in the first year with a loan, two in the second year, and two in the third year.
Projected Balance Sheet
The balance sheet illustrates the launch of the business on equity financing and augmented by safe debt over its first three years of operation to purchase additional trucks. This will allow cash and assets, as well as net worth, to continue to grow.
Retained earnings will be negative due to the loss sustained in the first year of operation and the start-up phase, but will move closer to positive in the third year after a profitable second year.
The ratios of the business are compared to General Freight/Long-Distance Trucking for businesses of $1 million to $5 million in revenues.
The valuation of the business after three years is estimated at an average between two methods of valuation, based on an earnings multiple and based on a sales multiple. Both methods yield similar results. The average valuation is $4.53 million.
Investors will be given 20% of shares for their capital contribution. Kerrigan will be given 46% for his capital contribution and 34% for his contribution as founder. Investors will see a 63% internal rate of return based on this valuation.
The market value of the business will be determined after five years, when the business is best poised for sale. The valuation of the business is expected to be between $10 and $15 million for a strategic sale to a national trucking operator at that point.