I am buying a freight broker. How do I evaluate working capital

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January 14, 2021

by a searcher from University of Minnesota - Twin Cities Campus in Overland Park, KS, USA

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Reply by a searcher
from University of the Pacific in Ripon, CA 95366, USA
Cash to cash cycle time is the lifeblood of the transportation industry. Net 30 days is the industry standard from receiving carrier invoice. This time allows you cash float and use sweep accounts before paying carriers. You can negotiate with you shippers to be paid faster for .5-1% deduction on gross profit. Make sure you have non-solicitation, non-competes and confidentially agreements in place with every agent/employee. 3PL is very much a personal relationship based industry. Low cost leader is generally the winner.
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Reply by a searcher
from Brown University in Lafayette, CA, USA
Jason,

Without seeing the balance sheet (but having worked in transportation), you should just have AR from the shippers (avg###-###-#### DSO for small shippers and###-###-#### for the really big players who have leverage), AP due to the carriers (I would ballpark terms can range from 7 days to 30 days) and AP for your employees doing the brokerage (duration being the payroll). Is that in line with what you're seeing thus far? An asset light business where NWC really should be your only growth constraint.

Tyler
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