Risk vs Reward - FedEx Independent Contractor

Discussion in 'FedEx Discussions' started by riskvsreward, Nov 26, 2014.

  1. riskvsreward

    riskvsreward New Member

    Hi Everyone and Thanks for Your Help~! I'm a newbie to the FedEx Business. I'm a small business owner who just sold a business and I'm looking to buy 3 FedEx PSA's to provide my family with a decent income and a good future. I have thoroughly examined the Financials of a 3 PSA, 3 trucks, 3 drivers and a manager in place business. They are asking $330K and I will offer no more than $300K.

    My main concern is Risk verses Reward~!

    RISK: What are the chances of losing my contract? I'm a seasoned business owner who does things right but I have heard horror stories of Independent Contractors losing their routes! I'm not worried about me, I'm worried about FedEx. How easy is it to LOSE your route OR How hard is it to LOSE your route. What has to happen before I LOSE my investment.

    REWARD: The current owner is making about $60-70K per year after all expenses with a manager in place. Will I be able to maintain this profit level and grow the profits if I work hard and manage the business well. OR is The FedEx Business simply a Bad Investment to be in.
     
  2. It will be fine

    It will be fine Well-Known Member

    Sounds like you're in an IC state, the rules are a bit different from what I'm used to, but I'll try to help.

    Can you drive? It's hard to have good backup plans if you can't. One manager with 3 routes should be plenty, but you never know.

    It's hard to lose everything. They will likely have you downsize before pulling the whole contract. If your guys follow the book and you maintain service levels there's nothing to worry about.

    How busy are the routes now? Your profits will take a hit when you need to add another route. Ground grows 6-8% per year so plan on adding trucks fairly often. I put on one about every 18 months.

    If you do start to fail, you'll know it early and can start looking for a buyer. Meet the senior manager before you buy and see what type of guy he is. They'll be the ones deciding how fast a contract goes up for termination, but it's not all that common.

    Ignore most of the replies on this board. It's a lot of people that don't know what they are talking about when it comes to Ground. Good luck.
     
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  3. riskvsreward

    riskvsreward New Member

     
  4. riskvsreward

    riskvsreward New Member

    Thanks So Much for Your reply~! Yes it's still an IC state. I don't have driving experience. The business was just awarded a new PSA so it seems to be a good time for a new owner to start. One of the trucks is a 1999 model with 300K so I May need to buy a used truck but that is yet to be seen.
     
  5. STFXG

    STFXG Well-Known Member

    60-70k profit with a manager on only 3 routes is suspect. How much does it gross?
    Plan on a new truck. Don't buy a used. You won't regret it. The 1k a month instead of 600-700 per month will be made up in maintenance costs.
     
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  6. riskvsreward

    riskvsreward New Member

    The route grossed $293K last year(2013). That was with 2 PSA's and 1 Supplement. Total Expenses were
    $222,500 including $120K Payroll.
     
  7. gixxer squid

    gixxer squid Member

    I was initially going to agree with STFXG Profit seemed a bit high with a full time manager but you put the gross as 293 and expenses 120. Seems like drivers are getting less than 700 a week. Might be a decent salary in your area. I would probably try and get the daily settlements to see how many stops are being done by the drivers each day. Are they being maxed out? Translating into over 120 stops (including pickups) per day. Drivers are going to be your achilles heel in this business. Get as much information as possible about them. Are they new? How long have they been driving for the contractor? I would also try and ride along with each of them for a full day. You will be able to glean much information on a full day with them.

    What is the managers responsibilities? Is he helping out each day with bulk?

    What were 2011 and 2012 numbers? We have a manager but we have had the perfect storm happen twice and I had to leave my job and drive for a month because we were out two people at the same time. It is imperative in my book that your know your routes, don't rely on your manager for everything. If your not somewhat involved, you may be held hostage by them. On my busiest day I schlepped 650 boxes, I did a sweep of all kinkos. When my guys start bitching and crying with a 400 box day I quickly pull out my phone and show them picture of my scanner showing what I did. Don't ask them to do anything that you can't do yourself. They will respect you for it.

    As far as you being worried about loosing your investment and contract, highly unlikely. Even if you abandoned a truck for one day its unlikely you will loose ISP, however, you better figure out how to do it all the next day, LOL Fedex is fairly tolerant IMHO (probably cause no one else will do the :censored2:, LOL)

    Have your own mechanic look at the 99 truck (as well as rest of them), we have a 98 that has 400,000 miles, no major problems
     
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  8. soc151

    soc151 Member

    Do the routes do 300 stops a day? If not, I would pass. You wouldn't survive a transition to ISP without having to buy more.
     
  9. riskvsreward

    riskvsreward New Member

     
  10. riskvsreward

    riskvsreward New Member

    Average Stops Per Day - 12 week average from 08-29-2014 to 11-14-2014

    PSA#1 = 99 avg. stops per day including pickups

    PSA#2 = 64 avg. stops per day including pickups

    PSA#3(New) = 62 avg. stops per day including pickups

    How does this look to You Guys?
     
  11. UpstateNYUPSer

    UpstateNYUPSer Very proud grandfather.

    What do they do after lunch?
     
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  12. bbsam

    bbsam Moderator Staff Member

    That's why they don't make $90k a year.
     
  13. bbsam

    bbsam Moderator Staff Member

    I have a '98 International stepvan with 460,000 miles on it. Original engine, replaced all 8 injectors last year. Bought it out of a scrap yard 6 years ago.
     
  14. riskvsreward

    riskvsreward New Member

    bbsam,

    Could I please get Your opinion on the routes I am looking to buy. Thanks~!
     
  15. Garciawork

    Garciawork New Member

    Those numbers seem pretty low. Is this a really rural area or mountainous area? Or are the routes really far away from the terminal? If the routes are remaining under the IC model, you will still have core zone to hopefully make up for the low stop count.

    If they are producing enough profit, and the routes aren't super difficult, keeping drivers shouldn't be too difficult.
     
  16. bbsam

    bbsam Moderator Staff Member

    I'd say $250k max. Even that I would have to think long and hard about.

    If you do buy, what kind of ROI are you looking for? My first move would be to solidify the workforce and that probably means a fairly substantive raise if possible. You are going to want them as loyal as possible while learning the ropes. As gixxer said, lean the routes inside out and backward. You will gain mutual respect.

    Overall probably more reward than risk. X doesn't want a revolving door at the contractor position. The real question is how do you define "reward" and how soon do you need to see it.
     
  17. It will be fine

    It will be fine Well-Known Member

    How many miles are they doing a day? Must be a lot if they approved a psa doing 60 stops.
    Cuts both ways. There should be plenty of capacity for growth, so you won't need to add another route too soon. They should be easier to staff if they are that light. The routes will beat up the trucks fast if they're doing a couple hundred miles a day.

    There was a good point about ISP transition though. I would try to find out if your state has ruled on the IC model recently to see how likely a transition is. 3 PSAs could be scale but not necessarily, it's 5 out in Cali. If you have the cash to expand if it becomes needed then you don't need to worry about ISP. I would definitely look into court ruling though.
     
  18. riskvsreward

    riskvsreward New Member

    bbsam,
    The "reward" I am looking for is to pay myself about $45K per year and still have about $30K profit. I would expect to see the profits grow year over year as well.
     
  19. STFXG

    STFXG Well-Known Member

    Pay yourself 15k and take the rest in dividends. ;)
     
  20. bbsam

    bbsam Moderator Staff Member

    Careful with that first number. Make it too small and you invite IRS prying eyes.