What is a freight forwarder worth?

A freight forwarder arranges the movement of other people’s goods and is paid for the arrangement. That shapes what a buyer is buying. There may be little equipment to appraise, so a buyer using an earnings-based method (BDC describes these as valuing a business on past results and forecasted cash flow or earnings) will want to know whether those earnings are still there once the owner and the account managers have changed. The sources cited here give no pricing formula for forwarders. This guide therefore stays with mechanics: what a buyer looks at, what gets discounted, and how reported numbers are recast. For the general method, start with what is my business worth.

Billings are not earnings

If the forwarder invoices clients for carrier charges and passes them through, gross billings can sit far above what the business keeps. Ask for revenue split between pass-through charges and the forwarder’s own margin, and for margin by client and by trade lane. The Canada Small Business Financing Program guidelines show the same issue when measuring a borrower’s gross revenue for eligibility: where a small business is in an agency relationship, gross revenue could be determined as the income coming into the business less commissions or other obligations under the agency terms. Whether a given forwarder is in that position is a question about its contracts. A buyer comparing two forwarders on billings alone may be comparing different businesses.

What a buyer is paying for

Look at what would be slow to rebuild: carrier and airline relationships, negotiated rates, consolidation volume, and a customs function. Each is a question, not a given. Do the rate agreements survive a change of ownership, or can the carrier reprice? CBSA’s guide to importing commercial goods lists the steps an importer works through: finding the tariff classification and value for duty, registering in the CBSA Assessment and Revenue Management system, making a declaration to have goods released, and paying duties and taxes. Find out who performs those steps for clients — the forwarder, an affiliate or an outside broker — and whether that arrangement moves with the sale.

What gets discounted

Four questions to put to the seller, each of which a buyer may weigh in the price. How many clients produce most of the margin? How many trade lanes carry it, and does one origin country dominate? Are cargo loss, damage or mis-declaration claims open? Does any accreditation the air-freight side depends on show a clean standing? Owner dependence belongs on the list too. BDC reports that buyers may insist on a reduced price if the seller cuts all ties, and a BDC advisor describes a full cash-out as leaving the buyer with more risk. If the carrier relationships live in the owner’s head, that discount is easy to picture.

Recasting the earnings

Reported profit and the figure a buyer prices can differ. Adjustments to ask about are add-backs: owner pay above or below a replacement manager’s, one-off claims or settlements, and personal costs run through the company. Add a forwarder-specific check: does the owner’s other company ship through the forwarder, and was it charged the same as other clients? BDC lists year-end and interim financial statements and projections among the documents an accountant prepares for a sale. Ask the accountant to show each adjustment and the document behind it, since a buyer’s accountant may test them.

Why similar forwarders price differently

Two forwarders with the same margin can differ in how repeatable it is. One holds key accounts under written terms and has several people who know each client. The other depends on the owner’s phone. Part of the price may be allocated to goodwill. The CSBF guidelines list goodwill, if part of a going concern purchase, among intangible assets, and say that where the program requires an appraisal of intangible assets, it can be made by an appraiser with experience in evaluating such assets, such as a chartered accountant or chartered business valuator. A third-party view can test the price, but it does not replace the buyer’s own diligence.

What changes if the owner leaves

Run the numbers twice: once as reported and once with the owner gone. Replace the owner’s pay with a manager’s, then ask which clients and carrier rates would stay. If the owner personally holds the biggest accounts, some of the margin may depend on the owner rather than the business, and a buyer may want part of the price to depend on what happens after closing. An earn-out is one way to do that, and your lawyer can explain how one is drafted. BDC names vendor financing, an earn-out and a phased transfer of ownership as ways a seller can stay involved after the sale.

• Margin after pass-through carrier charges, by client and by trade lane, for each recent year.
• Every carrier and airline agreement, with any clause that lets the other side reprice or end it on a change of ownership.
• The share of margin tied to the owner personally, and who else holds each client relationship.
• Open claims and their status, plus any accreditation standing the business relies on.
• The documents behind each earnings adjustment, ready for the buyer’s accountant.