Preparing your FedEx business for a future sale
What We Look for as FedEx Contractors Prepare Their Businesses for the Market
At Capital Route Sales, we work exclusively with sellers of FedEx ISPs and TSPs. Over the years, we’ve seen businesses that were exceptionally easy to evaluate and sell, and others that took significant time to reconstruct the financial picture before we could confidently take them to market.
In many cases, the difference isn’t the size of the business.
It comes down to how well the business has been documented and managed financially.
If you’re a FedEx contractor today and think you may eventually sell your business, there are steps you can take now that can make the process significantly easier when that time comes.
You don’t have to be thinking about retirement or putting your business on the market next year.
In fact, the best time to prepare a business for sale is when you aren’t under pressure to sell.
Why This Matters More Than Anything Else
When a contractor comes to us about selling, one of the first things we need to understand is the business’s financial performance.
We’re not simply looking at a bottom-line number.
We want to understand how the business makes money, what it costs to operate, what expenses are necessary, how consistent the earnings have been, and what the financial performance looks like over time.
What We Look for When Evaluating a FedEx Contractor for Sale
Most route sales are financed through SBA loans, which require clean, verifiable financials, usually 2 to 3 years of tax returns and financial statements that reconcile. If your numbers are messy, inconsistent, or hard to explain, one of three things happens: the buyer walks, the lender declines, or your business doesn’t sell.
Clean books don’t just support a higher price; they make you financeable in the first place.
New SBA requirements will require the seller to provide midyear internal financials, and year-end financials will be required if your tax return has not been filed. This is going to catch a lot of sellers off guard. Having financials prepared each month will put you in a great position and avoid delays in the transaction.
- Historical Earnings
We generally want to see multiple years of financial information.
One exceptionally profitable year doesn’t necessarily tell us what a buyer is purchasing.
We want to identify the underlying trend.
Has the business consistently generated earnings? Have margins changed? Were there unusual events that affected a particular year? Are recent results representative of normal operations?
A multi-year financial history gives us a much better understanding of the business.
- Consistency in Bookkeeping
We look for consistency in how income and expenses are recorded.
If expenses move between categories from year to year, it can make it more difficult to analyze the company’s true performance.
This is where a good bookkeeper can be extremely valuable.
Consistent bookkeeping gives the broker, buyer, CPA, and lender a common financial language to work from.
- Owner and Personal Expenses
It’s not unusual for privately owned businesses to have expenses that benefit the owner personally.
That’s not necessarily a problem.
What matters is that those expenses are properly identified so we can determine whether they represent ongoing operating expenses or expenses that a future owner would not incur.
During our analysis, we may identify certain expenses that require further explanation or adjustment.
The cleaner the records are, the easier this process becomes during underwriting and a 3rd party independent valuation that banks are required to order. This is perhaps the most crucial step in the entire process.
- One-Time or Non-Recurring Expenses
Businesses will have unusual expenses.
A major vehicle repair, legal expense, equipment purchase, or other extraordinary event may impact one year’s profitability without representing the normal economics of the business.
We want to know about those items.
If something is unusual, document it.
A simple explanation and supporting documentation can prevent a buyer from incorrectly assuming that an unusual expense is part of the company’s normal cost structure.
- Fleet and Capital Expenditures
For FedEx contractors, the fleet is typically its largest physical asset.
We want to understand:
- How old the vehicles are
- What vehicles are owned versus financed
- Outstanding vehicle debt
- Maintenance history
- Recent capital expenditures
- Upcoming replacement needs
- Major repairs
- Vehicle values
A contractor who has maintained good fleet records makes it much easier for us to explain the business to a buyer.
Don’t Try to Clean Everything Up When You Decide to Sell
We’ve seen owners wait until they are ready to sell before addressing years of inconsistent management. Do not wait until you need to sell to act!
That’s when the process becomes much more difficult.
Imagine trying to determine which expenses were personal, which were legitimate business expenses, and which were one-time events by going back through several years of transactions.
It can be done, but it takes time.
Instead, establish good practices now.
Every month your books are maintained accurately is one less month that must be reconstructed later.
Your Bookkeeper Can Help You Prepare Long Before a Broker Gets Involved
This is where your relationship with your bookkeeper becomes particularly important.
Your bookkeeper regularly works with your financial information. They can identify inconsistencies before they become larger problems.
We encourage contractors to talk with their bookkeeper about the eventual possibility of selling their business.
It simply means everyone understands the long-term objective.
The goal is to create financial records that accurately reflect the business year after year.
What About Tax Returns?
Tax returns are an important part of the due-diligence process, particularly when a buyer is obtaining financing.
However, a tax return and a business valuation serve different purposes.
Your tax return is designed to properly report taxable income.
Our job as a broker is to analyze the business’s financial performance and determine how it translates into the operation’s value and cash flow.
There may be legitimate expenses on a tax return that require additional explanation when we’re analyzing the business for a buyer.
This is why we typically work with the seller’s CPA and bookkeeper during the transaction.
Everyone has a different role, but the goal is the same: to accurately document the business.
Don’t Forget the Records Behind the Numbers
Financial statements tell us a lot, but sometimes we need to see the documentation behind them.
We recommend keeping organized records for:
- Tax returns
- Profit-and-loss statements
- Balance sheets
- Bank statements
- Payroll
- Vehicle purchases
- Vehicle loans
- Insurance
- Major repairs
- Equipment purchases
- Lease agreements
- Significant one-time expenses
- Other major business transactions
The important thing is knowing where they are when they’re eventually needed.
What Happens When You Decide to Sell?
Once you’re ready to explore a sale, our process begins with understanding the financials.
We’ll typically gather financial information and operational details, review the routes and fleet, and work toward establishing a reasonable valuation range and sale strategy.
From there, we prepare the business for the marketplace.
Once a qualified buyer is identified, the process moves into due diligence.
This is where the preparation you’ve done over the years can pay off.
The buyer will have questions.
Their CPA may have questions.
Their lender will have questions.
The smoother the underlying documentation, the easier it is to respond to those questions.
The Importance of Accurate Financials During Due Diligence
A buyer doesn’t expect a business to have zero questions.
That’s not realistic.
What buyers generally want is the ability to understand the answers.
If your financial statements show an unusual expense, we want to be able to explain it.
If profitability changed significantly from one year to the next, we want to understand why.
If a large capital expenditure occurred, we want documentation.
If the owner has expenses that won’t transfer to the buyer, we want to identify them.
The goal is transparency.
Good financial records don’t eliminate the need for due diligence. They make due diligence easier.
Three Things We Recommend Every FedEx Contractor Do Now
Even if you have no plans to sell, we recommend three things:
- Keep Clean Books
Work with your bookkeeper to ensure your accounts are reconciled, and your income and expenses are consistently categorized.
- Keep Good Records
Maintain organized documentation for your fleet, employees, equipment, loans, insurance, and significant transactions.
- Think Long-Term
Ask yourself:
“If I decided to sell this business three years from now, would my financial records make that process easy or difficult?”
If the answer is “difficult,” now is the time to start improving them.
A Successful Sale Starts Before the Listing
Selling a FedEx contracting business is a major financial transaction.
For many contractors, the business represents years of hard work and a significant portion of their personal net worth.
The sale process should therefore begin long before the business is listed.
At Capital Route Sales, we help contractors evaluate their businesses, understand their financial performance, establish a valuation range, prepare their businesses for the marketplace, and guide qualified buyers and sellers through the transaction process.
But the foundation starts with the contractor and their financial team.
Your bookkeeper and CPA play an important role in maintaining the financial records that allow us to properly analyze and present your business.
If you’re a FedEx contractor who thinks you may eventually sell, even if that sale is years away, start preparing now.
Clean books today can mean a smoother transaction tomorrow.