Are FedEx routes just scams? Could I be ripped off?
People that have never purchased a business before are always wondering,
“If the business is so good, why are they selling?”
It’s a great question, and sometimes you’ll find out the real answer (retiring / moving) and sometimes you won’t (bad relations with a terminal manager). This is a question that comes from a place of inexperience though, and with routes, as you gain experience you’ll soon become indifferent as to why they’re selling.
A more experienced question is – Are you about to make a lot of money, or lose all your money with this decision?
Evaluating a business from its past:
With other businesses that you’re not tremendously familiar with the industry, you almost always have less knowledge than the seller. A seller of a privately owned auto lube shop may know that a Jiffy Lube is coming to town right across the street that will destroy the profits of the next year – even though you did everything to validate the current income was accurate.
You can be scammed with past info (bad tax returns, falsified income) or scammed in the future (not knowing a competitor is coming to town).
While there’s risk of the future earnings for any business with or without the sellers knowledge, there’s definitely more risk for past earnings being falsified in a typical business.
However, with routes, all of these elements of risk are heavily mitigated like no other business you can buy.
The paychecks are seen and validated from FedEx itself. There’s no shoddy or confusing tax returns to try to decode. In fact, it would be behoove you to not bother to look at a tax return on a FedEx route. Why? Because maybe they had more routes when they filed the return last year, sold a couple routes earlier this year to their buddy, and are now selling you the remaining ones making much less. Also, some people have sharp CPAs that write off everything under the sun, and some CPAs are very conservative and write off very little.
It’s not fair to you to compare the businesses by tax returns.
If you insisted on wasting your time, I’d say that tax returns should only help confirm, but not invalidate (which is why this is a waste of time) what is already being claimed after you verify the paychecks/settlements yourself.
Therefore, many route sellers and brokers both don’t even bother to provide them. This is to keep you focused on verifiable income shown from those settlements directly from FedEx corporate. Many times route contractors are only selling a couple of their routes anyway, and seeing a tax return would have zero relevance to anything.
The number one thing you need to do is simple. If you’re wanting to perform appropriate due diligence, ask to see the actual paycheck settlements from FedEx – not claimed income from the seller, not a spreadsheet of hand typed income and definitely not last years tax return. Everything else that you look at and hear from the seller should be confirmed by those settlements.
So that’s how to evaluate routes in terms of past performance.
But what if the seller knows something you don’t about the future for the business?
Evaluating a business by its future:
So maybe the seller knows something like a business that has a large account with FedEx is being shut down or something? While this situation is exceedingly rare, even if businesses shut down that were large FedEx accounts, FedEx route engineers create routes such that they know even in regular contractions of economic markets, there will still be sufficient business there to keep the route healthy. This is why FedEx is very cautious to create new routes, meanwhile contractors go around shouting that they hate supplemental routes.
Also, if you don’t understand why supplemental routes are problematic, you need to order my consultation or simply not purchase the routes yet because you’re not informed enough.
FedEx’s caution in creating new routes creates a lot of pain for contractors in regards to supplemental routes, but it also creates a large amount of stability of official routes, meaning that you’re not likely to ever purchase a route that just collapses because a couple businesses shut down.
Also, the barriers to entry for large world wide shipping companies is incredibly high. This isn’t like buying a little Mexican restaurant and a giant Abuelo’s Mexican restaurant chain comes to town and easily destroys your business. It’s very difficult to add a new player to the logistics industry, and if anything, we’re seeing players get smashed out (like USPS*) by the UPS and FedEx titans.
Therefore, your future business risk with a route is also generally low.
*the whole competitive vs cooperative relationship between these 3 carriers isn’t quite so black and white, but suffice it to say USPS isn’t doing well considering the $15.9 billion loss in recent years