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Looking at Opportunity to become FedEx ISP
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<blockquote data-quote="dmac1" data-source="post: 1868346" data-attributes="member: 60252"><p>You think it will be tweaked, without knowing how much, and I think it will be dumped. Are you suggesting someone should value a business with either of those conditions as they would value a business without those risks???? </p><p></p><p>Using a standard business valuation model for an ISP contract would be foolish without a substantial discount for the uncertainties. In just 2-3 yrs it will become more clear as to the profitability of ISPs as fedex tries to hold onto every penny. And fedex will know in a few years if they can make more profit with another model or cut profits from ISPs. If they think ISPs are making too much money, they will always find someone who will underbid you.. Whatever you think, the ISP model is in the testing phase on both sides. ISPs haven't yet faced difficult renewal talks where another ISP thinks he can undercut you. For a potential buyer, that possibility is a large detraction in value even without the legal problems the model faces.</p><p></p><p>If you pay $40,000 per route for 5 routes, based on the current contract with fedex, in a couple years, expect cutthroat negotiations with fedex, who at the same time will be offering others the ability to take over your business if they can further undercut your bottom line. Fedex actually MUST try to cut your pay in order to fulfill their fiduciary responsibility to the shareholders. </p><p></p><p>Would you buy a business for $200k knowing that in a couple years, that business could be taken from you, when you based the value on certain facts? Believe me- Fedex will shop around finding the lowest bidder when your contract comes up for renewal. That puts pressure on you to make sure you pay your drivers less, since that is really the only controllable expense you have. And then you have the pressure in the opposite direction of other contractors who see your best drivers and will offer them more, especially if they have even slightly more profitable routes or terms in their contract with fedex.</p><p></p><p>It is a cutthroat business from all sides, and as someone coming in new, there is a target on your back. IF you need vehicles next year, and fedex tightens up on pay as compared with costs, you have no choice but to lose part of your earnings to make up the difference. Fedex will be examining and comparing settlement checks to see where they believe that can make cuts to your earnings. Fedex still won't allow single ISPs in a terminal because they want to use the competition between ISPs to reduce their costs, while forcing you to scrape the bottom of the barrel to make ends meet.</p></blockquote><p></p>
[QUOTE="dmac1, post: 1868346, member: 60252"] You think it will be tweaked, without knowing how much, and I think it will be dumped. Are you suggesting someone should value a business with either of those conditions as they would value a business without those risks???? Using a standard business valuation model for an ISP contract would be foolish without a substantial discount for the uncertainties. In just 2-3 yrs it will become more clear as to the profitability of ISPs as fedex tries to hold onto every penny. And fedex will know in a few years if they can make more profit with another model or cut profits from ISPs. If they think ISPs are making too much money, they will always find someone who will underbid you.. Whatever you think, the ISP model is in the testing phase on both sides. ISPs haven't yet faced difficult renewal talks where another ISP thinks he can undercut you. For a potential buyer, that possibility is a large detraction in value even without the legal problems the model faces. If you pay $40,000 per route for 5 routes, based on the current contract with fedex, in a couple years, expect cutthroat negotiations with fedex, who at the same time will be offering others the ability to take over your business if they can further undercut your bottom line. Fedex actually MUST try to cut your pay in order to fulfill their fiduciary responsibility to the shareholders. Would you buy a business for $200k knowing that in a couple years, that business could be taken from you, when you based the value on certain facts? Believe me- Fedex will shop around finding the lowest bidder when your contract comes up for renewal. That puts pressure on you to make sure you pay your drivers less, since that is really the only controllable expense you have. And then you have the pressure in the opposite direction of other contractors who see your best drivers and will offer them more, especially if they have even slightly more profitable routes or terms in their contract with fedex. It is a cutthroat business from all sides, and as someone coming in new, there is a target on your back. IF you need vehicles next year, and fedex tightens up on pay as compared with costs, you have no choice but to lose part of your earnings to make up the difference. Fedex will be examining and comparing settlement checks to see where they believe that can make cuts to your earnings. Fedex still won't allow single ISPs in a terminal because they want to use the competition between ISPs to reduce their costs, while forcing you to scrape the bottom of the barrel to make ends meet. [/QUOTE]
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