Whether you are selling or buying a FedEx Route you are going to hear about due diligence. Due diligence is actually a part of selling every single type of business. All it really means is that the buyer is checking to make sure that your route is worth what you say it is worth, and that it is profitable.
There are a number of ways to do this. As a seller, you need to be prepared: you’ll need your taxes from the last few years, any profit and loss statements, and accurate records about repairs, fuel costs, labor costs, and other costs associated with your route.
As a buyer, you will want to see all the documentation you can about the route: everything from equipment value and condition to profit and loss over the last few years and ensuring that all taxes and business expenses are up to date.
So when doing due diligence, how do you know what a route is worth?
The Size of a FedEx Ground Route
One thing that will impact the value of any route is the size. But size means more than one thing when it comes to FedEx Ground route worth.
- The number of stops: The average number of daily stops is one aspect of route size. So is the breakdown between business stops, business pickups, and residential stops. These affect not only how much money the route takes, but how much time is spent on the route each day.
- The mileage of the route: this also involves two aspects. The first is how many miles or driving the route requires daily and even weekly. This has a direct impact on fuel costs and vehi8cle wear and tear, along with maintenance.
- The geographic size of the route area: regardless of the number of miles in the route now, the geographic size can change that at any time. A new business or housing development can add miles or stops to the route. Pay attention to where route boundaries are, and how the route is growing.
All three of these impact the value of a route, and it’s potential profit going forward. Ideally, a route will have established stops and room to grow.
Location and FedEx Ground Route Worth
Another factor in FedEx Ground route worth is where it is located. An urban route with more stops that are closer together will have a different value than a rural route where fewer stops are farther apart. This value is a delicate calculation between the pay per stop and pay per mile.
Many times, these routes are close in value, but it is important to pay attention to location from the start. And as stated above, sometimes rural routes have more room for growth. New businesses or developments can more in and change the character of your route.
This can be a good thing: routes can split and new routes can be formed, making your overall FedEx Ground business more profitable, but it is an important factor in what a route is worth.
When you sell a route, you can either sell it with all the equipment or sell it separately. There can be advantages and disadvantages to both ways depending on the age and condition of your equipment.
As a buyer when you purchase a route, you may want to start with brand new equipment or choose to purchase the equipment currently being used on the route based on the same factors, age and condition. If you purchase equipment with a route, it will cost more initially, but even if you are replacing a truck, the original one might serve as a good back up.
However, if equipment is newer and in good condition, it may be best to purchase it with the business and wait to replace it when needed. It can be easier to finance the trucks and other needed materials as part of the business purchase rather than qualifying for a separate loan.
Either way, equipment value has an impact on FedEx Ground route value, and should be factored into due diligence.
Cashflow and FedEx Ground Route Worth
The next factor is a little harder to define. Cashflow, or the amount of cash available to run daily operations of the business, is a factor in route worth. This is more than profit and loss, but how cash is managed.
As a buyer, it is good to see how the seller does this, and maintains liquid assets to enable them to run the business. As a seller, it is good to show positive cashflow as a part of your profit and loss and accounting statements. It proves to the buyer that your route is profitable and a viable business.
Last, but certainly not least, as a buyer you want to see that a route is profitable. As a seller, you want to show that you make a profit on your FedEx Route business on a regular basis. A buyer might purchase a route that is losing money if they feel they can turn it around, but they usually will not pay the price the buyer wants.
The goal is always to sell a profitable business, as that will give the buyer confidence when they make a purchase and helps the seller get the price they are looking for.
Does all of this sound a bit complicated? It can be. This is one of the many reasons to hire a route broker when buying or selling a FedEx Ground route. They can help you with due diligence and determining if a route is financially sound before you list it for sale, or before you enter into any purchase agreement as a buyer.
Contact us at Route Advisors today. We’ll be with you every step of the way.