Billions of dollars worth of goods are transported by trucking businesses each year, making the industry especially lucrative for entrepreneurs. But despite the payoff potential, startup costs for transportation companies can be high – particularly for owners who plan to purchase their own fleet of vehicles. Most owners will need to borrow at least some capital to get going when buying a trucking business for sale. To further complicate matters, many investors are reacting to a sluggish economy by scaling back funding. Whether you’re seeking to finance your trucking business purchase with help from family and friends, a bank loan, or venture capitalists, here are a few rules to live by.
1. Have a Plan
If you’re hoping to capture the attention of an investor, be it a bank or a buddy, you need to have a polished plan. Small, independent businesses are considered by many to be a huge investment risk. A solid business plan mitigates that risk by clearly laying out the details of your business to your target investors. Major components of a good plan include the story behind your business idea, the condition of the industry and market, your target customers, details about how you will earn money, and a realistic estimate of your initial operating expenses. If you can’t take the time to draft a well organized document, how do you expect investors to believe you can be trusted managing a trucking business effectively? The more professional your plan, the more professionally you will be treated by lenders.
2. Make Yourself Attractive
While it’s true that Small Business Association backed bank loans have dropped significantly as a result of tightened credit, they remain an important source of small business funding. Your ticket to scoring one is to make your trucking business more attractive than your competition. If you were looking for a return on an investment, who would you be most likely to lend money to? Chances are, it would be someone with an impressive credit history, a source of collateral, an accurate trucking business valuation, and the ability to provide at least some of the necessary start-up capital. Just like you, lenders are entering into the transaction to make money. If you can figure out how to make the situation a win-win, you’re in good shape. When traditional bank loans fail, a smaller loan from a nonprofit microlender may be enough to help you purchase a small trucking company for sale.
3. Protect Your Best Interests
Often times, new business owners focus so intently on nabbing that all-important startup funding that we forget to carefully consider the terms of a transaction. This is especially common when borrowing capital from friends or family. You and your lender may have the best of intentions, but you have to consider all possible outcomes. What if your cash flow estimates are off and you cannot make repayments as planned? What if your investor gets into a tight financial spot and demands repayment more quickly than you agreed upon? To avoid relationship rifts and potential lawsuits, hash out the terms of the agreement and put them into writing well in advance of borrowing money.
When it comes to approaching investors, a well-planned pitch is everything. It just so happens that all that planning will put you in a better position to succeed with your sought-after capital when you do secure it.