What’s the buying process look like for a route?
There are 2 phases of the route search. Things you do on your own before you ever reach out to a broker, and things you do after you’ve made contact with the broker.
Phase 1 – Before you talk to the broker:
Step 1: Look for routes with asking prices you can fully afford.
Due to financing difficulties, it may be wise to stop looking for routes if you don’t have 20% cash available to put down on a FedEx route, or the cash amount that a bread route may require for the down payment (which can be as little as 5-10% or up to 50% commonly).
On one hand, I know people are thinking they want to see what’s out there and to try to learn about this world of FedEx and bread routes for sale out there. The problem is that when you finally discover you do love the idea of routes as a business, you’re still left with the problem of not having the money to buy these routes.
Now granted, some routes will have company financing such as bread routes like Pepperidge Farm, Snyders, and Bimbo. But many routes like Mission and FedEx offer no company financing.
There’s no sense in getting excited about buying a certain route if you don’t have the money for it. If you get known as someone that wants to make low ball offers, you’ll often be black-listed as a tire kicker by most brokers.
Step 2: Think about whether the route’s claimed income meets your income needs.
For some of you, this seems obvious. But through the years, I’ve helped consult people with buying routes and helped them perform route due diligence only to find out at the end when we verify everything is accurate that the person has decided that “the $60k income the route is making just isn’t going to be enough.”
Save yourself the time and ask yourself, “If all the figures are completely accurate in the listing, does the route meet my income needs?”
Step 3: Imagine yourself doing the work on the route.
Are you ok with waking up as early as 3am for the average bread route? Routes are labor intensive and require the ability to lift, hold, bend over, etc. While I’ve consulted people even into their 60’s to purchase profitable routes, they realize that they need to either a) feel comfortable being active on a route or b) feel comfortable managing helpers/employees (and also be ok with the lowered income levels from having that helper)
If you’re managing an employee, are you ok with the idea of hiring or firing someone to run the route?
Many buyers become unnecessarily mentally married to the employee that comes with the route! I can’t emphasize this enough.
Did the employee that’s on the route rub you the wrong way or mention that one day he wants to quit? No problem – hire someone new.
Is the current employee getting paid way too much? No problem – hire someone new.
Is the current employee unwilling to take on 100% of the responsibilities of the route?
No problem – hire someone new.
When you buy a route, you must have the time to learn the route yourself and work it yourself for usually a month or two so that you understand how the route is run, and also so you can train new employees. That means if you have other job obligations, you’ve got to ask yourself, “Do I have the flexibility or time to learn this route for 6 weeks?”
A route is a great business that’s easy to understand, but you have to have the time to learn how they’re run so you’re not dependent upon a single employee.
Phase 2 – Contacting the broker:
Step 4: Contact the broker for due diligence.
At this point, you should already know:
1) You have the money / funding for the route,
2) Are fine with the income being generated,
3) Can physically do the work or manage the employees, and
4) Have the time to learn the route at first.
The primary purpose of the broker is to answer your questions for the route specifically.
After any general questions are answered about the route, you should be presented with an NDA (Non-Disclosure Agreement) which essentially tells you to not share information with people that aren’t DIRECTLY involved with your due diligence and also to not try to work around the broker.
The broker should always provide answers so you can verify the income figures, get details on the route territory, discover what truck is included, etc.
All your main questions regarding income, understanding paychecks, etc. should be able to be answered during this stage. While many people will get consultation before they’re at this point, this step is the most critical time for getting consultation.
Step 5: Contact the seller for a ride-along or do an on-site evaluation
Note that ‘ride-alongs’ are more common in bread route evaluation and on-site evaluations are more common in FedEx acquisitions. If everything looks good and you’re extremely interested in the route, the broker facilitates a “ride-along” where you drive or ride with the owner/employee of the route to see how it’s actually run.
The ride-along is the final stage of the route buying decision process.
After the ride-along you may have a couple remaining questions, but beyond the ride-along the only stage left is making an offer.
Note that ‘ride-alongs’ are typically reserved only for bread routes, as many times it’s a low-value activity to do a ride along on a FedEx route. It’d be like buying a bundle of 20 McDonalds restaurants and think that running the register for 12 hours in one of the locations is a good idea. It definitely can’t hurt, but there’s better and more efficient ways to evaluate the business.
Due diligence questions regarding paychecks, income, etc. should have all been addressed back in Step 4.
The ride along is just so you can get a true feel for the business and really see how it operates on a day to day basis. The questions that come up after the ride-along should be pertinent to the ride-along specifically, as other questions should have been covered by this point.
Many people get to a ride-along and have decided to not make offers because they “don’t want to wake up early to work” or “the routes stated income isn’t enough.” Don’t be one of those people. As a savvy buyer, by the time you’re on a ride-along, you should have addressed all those issues.
Step 6: Present an offer to the broker (not the seller).
If your offer happens to seem low to the seller (even if you’ve only offered a few thousand less than asking!), the seller could become offended and basically cease wanting to deal with you. Presenting an offer to the broker is a safer way since the broker is interested in facilitating the sale for both parties.
Step 7: Once the offer is accepted, present the down payment immediately.
Sometimes brokers will allow a short amount of time to elapse between an accepted offer and the deposit. But until a deposit to the broker is actually made, the route is on the market and can still be purchased by others. This is why you want to have paid attention to Step 1 and already have the money available for the route (at least in terms of the down payment).
Remember what that down payment is – an agreement to bind the seller to sell to you (and subsequently turn down other potential offers that may even be higher) and an agreement to bind the buyer to buy the route. The deposits are almost always non-refundable for any reason other than the company not approving an application. Failure to come up with the remaining funds, changing your mind, getting cold feet, etc are all reasons buyers have lost their deposit. Losing deposits is extremely rare in this industry, and astute buyers should never have an issue with this.
Step 8: Get your company set up.
Most contractors decide to set up an LLC or S-Corp. Note that whether you’re interested in bread routes vs FedEx routes will dictate the specifics on how to proceed. FedEx requires owners to have an S-Corp (most common) or a C-Corp set up. Whereas bread routes are more flexible with their business entity structure. Some route companies do not require you to be an LLC or S-Corp though and this is something you should ask about. If you decide to set up an LLC or S-Corp, the process is done online by many states and should take 1-5 business days and usually costs less than $500. Don’t use the mail system, as it will delay the transfer of the route unnecessarily.
Step 9: Go through the background check, credit check, company application.
This is the process that’s handled between you, the seller, and parent company. Once approved, you’ll set a transfer date for the route to switch names. You’ll present the funds to the buyer within one week prior to the transfer date. The route will switch into your name on that date and you’ll be the proud owner of that route.