Seller Basics: What Are My FedEx Routes Worth?
Across the United States, thousands of independent contractors own and operate FedEx routes. They are a driving force behind the global FedEx delivery model, managing the transportation and delivery of countless packages to homes and businesses from coast to coast. However, like any other small business owner, there may come a time when selling is the right decision.
If you are ready to sell your FedEx routes and cash in on the equity your business has earned, determining the value of your routes—whether you own P&D routes, linehaul routes, or both—is a good place to start. The good news is that there is a pretty consistent way to calculate route value, and the experts at KR Capital created the following 4-step guide to help you find out how much your routes are worth.
Step 1: Compile a Profit and Loss (P&L) Statement
The first step in calculating the value of your FedEx routes is to determine the free cash flow of your business. (Not to worry, this is actually easier than it sounds.) Whether you personally keep track of your income and expenses or you employ someone to do it for you, starting with a traditional P&L statement will help to identify all income and expenses associated with your corporation. Your 1099 from FedEx will identify the gross revenue that your corporation has earned from FedEx. The next step is to list all expenses incurred by your business, including the cost of fuel, repairs and maintenance, payroll, and insurance.
Step 2: “Normalizing” the Profit and Loss Statement
This next step is done by identifying expenses that are:
- Personal in nature
- Tax reduction strategies
These are expenses that a new buyer will likely not incur once they purchase your routes, for example personal expenses or interest payments for a loan that will be paid off prior to the sale of your routes. Record these expenses in a detailed spreadsheet (you can download our simple cash flow adjustment spreadsheet here) and add their total to the net income of your business.
Step 3: Identifying Shareholder Compensation
The next step in figuring out the value of your routes is pinpointing all the ways in which the ownership of the corporation receives compensation. As the owner of your FedEx route business, you may pay yourself and your fellow shareholders in a variety of different ways. These may include a W-2 salary and/or member draws. Officer wages (W-2) will either be lumped into the payroll expense or separated out as “officer salary”. Note that member draws may not actually be recorded as an expense on the P&L. If member draws are identified as an expense on your P&L, these can also be added to cash flow.
It should also be noted that if you or another shareholder works as a full-time driver, your associated wages should not be added to the cash flow because a new buyer will need to replace your salary with that of a replacement driver. Once shareholder compensation is identified, add this figure to those adjustments identified in steps 1 and 2. The total of these adjustments will then be added to the net income on the P&L in order to arrive at your final free cash flow amount.
Step 4: Determine the Industry Multiple
Businesses are traditionally sold based on a multiple of their free cash flow, often referred to as EBITDA (earnings before interest, taxes, depreciation, and amortization). Depending on the industry, the size of business, and several other factors, these multiples can vary to a large degree. Generally speaking, FedEx routes across the country sell for fairly consistent multiples. On average, FedEx routes sell at 2.5x to 3.5x the free cash flow of the business.
Get a free market valuation of your routes from KR Capital.
If you are ready to sell your FedEx routes and interested in finding out how much they are worth, the experts at KR Capital can help. Our comprehensive valuation process takes into account current and historical financial statements, growth projections, local market conditions, vehicle fleet, management and operational considerations, and more. Each valuation is supported by current market comps, lender input, and vehicle appraisals to help you determine exactly what your routes are worth.
Fill out our brief Seller Info Request form to help us get to know your route business, and a member of our team will contact you shortly to arrange a call.