Why a 1099 doesn’t accurately help you know what a FedEx route actually makes.
Most FedEx route sellers are good honest people. But ever since I’ve been giving consultations since 2010 now, I’ve started to see some pretty clever things route sellers pull. I saw this happen once a few years ago, but recently saw this FedEx scam appear again.
When you go through the typical due diligence model for a traditional business, you’re in for trouble.
So how do you buy a FedEx route? The beauty about FedEx routes is that they’re not like a franchise (thankfully) and don’t carry the risks of many typical established businesses (also thankfully).
Therefore, it’s a bad idea to evaluate a FedEx route as if it were a typical business.
Common sense fails us for evaluating something as uncommon as a FedEx route.
So, here’s the story about how a 1099 almost cost one of my clients about $90,000 in profits. My client came to me about mid-way through his own personal due diligence process. Of course, I suggest to start the whole process with help at first, but as they say, “better late than never.”
THE ROUTE BROKER:
The broker had been very friendly with my client in regards to getting info, but insisted upon looking at the 1099 “straight from FedEx corporate” to help evaluate the routes. At first, this seems like a good idea. The broker insisted that the other paychecks were too cumbersome to obtain, and that it didn’t matter because the 1099 would show the overall income of the routes. Many traditional business brokers are easily tricked as well by sellers since these businesses aren’t the typical business they’re used to selling.
My client then ordered consultation thinking that he had obtained accurate documentation on revenue side, but simply needed help evaluating the expenses of the business.
When I started to go through documentation with the buyer, he explained the 1099 he had received and that it was simply a matter of finding the hidden expenses sellers typically “forget” or “hide.” Sometimes the seller is totally honest but it’s always good to verify that as much as possible.
Regardless, I’m here to help and we look through everything together during the consultation. I first requested for my client to get some other documentation form the broker in terms of revenue, and as I began to comb the details of the listing and route description, I knew something was wrong. We caught it as soon as we got the more important documents from the broker –
The seller had owned 10 routes total for most of the prior year, but sold 3 of them in November.
What’s the problem with this? The 1099 does NOT show route acquisitions or the selling of any route.
The seller thought he was about to buy 10 routes worth of revenue, but was going to experience about a 30% drop in net earnings the moment he bought the routes. This was because he was basing his purchase decision on revenue of 10 routes, but since the 1099 lumps everything together, he didn’t realize that he was actually getting the revenue of 7 routes. It was clever on the seller’s part, because the route listing showed 7 routes for sale, and that’s indeed what he was selling, but the 1099 was based on 10 routes (as well as the selling price of the routes).
As they say, you don’t know what you don’t know.
Together, we caught the issue that nearly cost the buyer $90,000 in lost annual profits. Ultimately, I guided him through the process of acquiring another set of routes that did meet his income needs (since after the $90,000 hit to the bottom line, that route wasn’t going to work for him) and had a fantastic acquisition on his hands.
Don’t let the price of getting help keep you from saving $90,000. I’d love to help you get started on this process today and help you avoid the numerous pitfalls like this!
Also, don’t forget to drop me a line, I love hearing from everyone!