Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Trucking Company Sold for 11x Earnings by Cleaning Up Its Books
Transcript
- Lucas: There's a story I keep coming back to when people ask what actually moves the needle on a business sale price. A trucking company in the Midwest — intermodal freight, mostly hauling containers from rail ramps to warehouses — second-generation owner, roughly 45 million dollars at close. That sounds like a nice exit. But here's what's interesting: two years before the sale, that same business wouldn't have fetched even 25 million. Luna: So what changed? Did they land a massive contract, buy new equipment? Lucas: Neither. They cleaned up the books. That's it. The underlying operations were essentially the same. Same customers, same fleet, same dispatch team. What changed was the financial reporting. The owner had run the business like a personal checking account for 20 years. Lake house property taxes on the P&L. His son's college tuition. Two Mercedes leased through the company that his wife drove. None of that was malicious — it's incredibly common in private, family-owned businesses. But when a buyer looks at a set of financials, they see all that as noise. They don't know how much of the reported profit is actually sustainable. Luna: And the buyer doesn't just guess at that, right? They hire someone to dig. Lucas: Exactly. A forensic accountant or a quality of earnings specialist. The broker on this deal — a guy named Paul, who I've spoken with — brought in a part-time CFO about 18 months before the listing. Her job was to recast three years of financial statements. Separate what we call owner discretionary expenses from the true operating earnings. By the time she was done, the 'normalized EBITDA' had gone from roughly 2.8 million to 4.1 million. That's not funny money. Those were real expenses the owner had been paying personally that were buried in the company. Luna: And the multiple — buyers pay a multiple of EBITDA, so a 1.3 million dollar swing in earnings changes the whole conversation. Lucas: Changes it drastically. At a 6x multiple, 2.8 million gets you 16.8 million. At 4.1 million, 6x gets you 24.6. But the story gets better. Once the buyer saw clean, normalized statements, they actually offered a higher multiple — 8.5x, then after negotiation, 9.5x. Final deal was just shy of 11x. Why? Because the risk profile dropped. The buyer could see that the business genuinely generated that level of cash flow without the owner having to be there. That's the whole game in private sales. Luna: It reminds me of something — a couple of dollars a month is genuinely what keeps these conversations going, and it's amazing how many people tell me they've used something from this show in their own deal. If you've gotten something out of these episodes, buy me a coffee dot com slash fexingo — it makes a real difference. Lucas: Yeah, that's the thing that keeps us ad-free and focused on actual stories like this one. So back to the trucking company — once the financials were cleaned up, the first serious bidder came in. A regional logistics firm looking to expand. They offered 40 million, subject to due diligence. And that's where a second problem surfaced. Luna: The first bidder? What happened? Lucas: Their forensic accountant found about 70,000 dollars in unreported cash transactions over a two-year period. Not a huge number in the grand scheme — the business was doing 20 million in revenue. But it spooked the buyer. They dropped their offer to 32 million. The seller was furious. He argued it was just a few loads where drivers had been paid cash by customers and the dispatcher hadn't rung it through properly. But the buyer saw it as a control issue. If you can't track 70k in cash, what else is loose? Luna: So the deal fell apart. Lucas: It did. And that's actually a happy ending in disguise. Paul, the broker, went back to market with the same normalized financials but also brought in an outside auditor to certify the cash-handling procedures. The next buyer — a private equity-backed rollup — was less spooked because they had a clean third-party report. They offered 48 million, settled at 45. The seller ended up with more than the original offer, but only because he took the first failure seriously. Luna: So the lesson seems to be: clean up before you go to market. But how many sellers actually do that? Lucas: Almost none. Most owners wait until they have a letter of intent, then scramble to produce clean numbers. By then, the buyer's already suspicious. If you do it proactively — 12 to 18 months before listing — you control the narrative. You get to explain the adjustments on your terms. The trucking company's normalized EBITDA of 4.1 million became the baseline. The buyer knew that number was real because the recasting was done before anyone was even looking. Luna: What are the biggest red flags buyers typically find in private-company books? You mentioned cash, but what else? Lucas: Three things come up over and over. One: related-party transactions. The owner's brother-in-law runs a 'consulting' firm that gets 200k a year for no clear deliverable. Buyers hate that. Two: inconsistent revenue recognition. A company that books revenue when the invoice is sent vs. when the service is performed — that can swing numbers significantly. Three: owner compensation way below market. If the owner pays themselves 60k when a general manager would cost 150k, the buyer knows they'll have to absorb that cost. That's a real expense that needs to be added back, but many sellers forget to flag it. Luna: And the multiple — you said 11x for the trucking company. What's a typical range for a private business like that? Lucas: For a small to mid-size private company — say 5 to 50 million in enterprise value — multiples typically run between 4x and 7x EBITDA. Maybe 8x if it's a really strong niche. 11x is on the high side, but not unheard of when the earnings quality is pristine and the growth trajectory is clear. In this case, the normalized EBITDA growth rate was about 12 percent year-over-year for three years, which justified the premium. Luna: So the cleanup didn't just increase the earnings base — it also improved the multiple. Lucas: Exactly. The multiple is a reflection of risk. Clean financials reduce risk. It's that simple. The broker told me that after the recasting, he had data rooms with four different buyers. All of them independently arrived at similar normalized EBITDA numbers. That consistency built trust. When the second buyer's QoE report came back within 2 percent of the broker's numbers, the deal moved fast. Luna: I want to push back a little. Isn't there a risk that sellers 'normalize' too aggressively — strip out too many expenses to inflate EBITDA, and then the buyer feels tricked? Lucas: Absolutely, and that happens. Some brokers take an excessively aggressive approach — they'll add back every golf outing and magazine subscription. But buyers aren't stupid. They'll flag anything that looks like a one-time expense that actually recurs every year. The key is defensibility. If you add back the owner's personal car lease, that's fine. If you add back the office holiday party, fine. But if you try to add back the salary of a warehouse manager because 'the owner could do that work themselves' — that's going to get rejected. Luna: So how do you know what's a legitimate add-back? Lucas: There's a general rule of thumb. An add-back should be either clearly non-recurring — like a one-time legal settlement — or clearly discretionary and personal to the current owner. If a reasonable buyer would incur that expense to run the business, you can't add it back. The best brokers use a third-party accountant to prepare the normalized statements, so there's independence. That was Paul's approach with the trucking company, and it paid off. Luna: What about the seller's side? Did the owner have any regrets about the process? Lucas: His biggest regret was not doing the cleanup sooner. He told Paul he wished he'd started two years earlier. The emotional cost of the first failed deal was significant — he'd already mentally spent the money, told his family, started planning retirement. When it fell apart, he had to go through the whole process again. But he also said that having clean books gave him confidence in the second round. He knew his number was real. Luna: So if someone listening is thinking of selling in the next two to three years, what's the first step? Lucas: Get a third-party audit or at least a quality of earnings report done now. Not when you have a buyer. It costs maybe 15 to 30 thousand dollars for a small to mid-size business, but it can add millions to your sale price. Second, start running personal expenses through your personal accounts, not the business. If you've been paying for your car, your phone, your travel through the company, stop. Create a clean separation. Third, make sure your revenue recognition is consistent and documented. Those three things alone can transform how a buyer sees your business. Luna: And if the seller has already been approached by a buyer and hasn't done any of this? Lucas: Then they should insist on a pre-due-diligence quality of earnings report before signing a letter of intent. Some buyers will push back — they want to do their own investigation. But if the seller comes with a credible third-party report, it sets the baseline. It says, 'Here are the numbers. Let's negotiate from here.' That's a position of strength. The trucking company's story isn't unique — it's just a clean example of a principle that applies to almost every private sale. Luna: It sounds like the takeaway is that financial hygiene isn't just about compliance — it's a value driver. Lucas: It is the value driver. In a private sale, you don't have a liquid market telling you what your business is worth. The buyer is buying a set of numbers that they have to trust. If those numbers are messy, they'll discount them heavily. If they're clean and defensible, you capture the full value. The trucking company owner spent about 40 thousand dollars on accounting and auditing fees over two years. He walked away with an extra 20 million compared to the first offer. That's a hell of a return on investment. Luna: I think a lot of owners hear that and think, 'My books aren't that bad.' But they probably are. Lucas: Almost always. I've sat with dozens of business owners who genuinely believe their financials are clean. And then a good accountant spends two days and finds 300k in adjustments. It's not about fraud. It's about the habits that build up over years of running a private company. The good news is, those habits are fixable. The bad news is, you can't fix them overnight. Luna: So start now, even if you're not sure you want to sell. Lucas: Exactly. Clean books give you options. You might decide not to sell, but you'll have a better handle on your own business. Or you might get an unsolicited offer — and you'll be ready to say yes on good terms. Either way, you win.