How Much Does a “High Cost of Doing Business State” Impact a Route Business?
Within the United States, each state has extensive control over its own taxes, workers compensation rules, and labor laws. Further, each state has a different tolerance for employee-employer litigation. These variances make notable differences to a business.
Because of the rules, regulations, and tolerances, some states are known to be higher cost of business states. Examples of these states include New York, Illinois, and California. Other states, such as Texas and Tennessee, are known to be lower cost of business states.
The geographic impact on your business by state is one of the most important variables to your bottom line. Some states are extremely costly to do business in.
For example, as of July 2019 Illinois has the highest base vehicle registration fee in the country and the second highest gas tax in the nation. Similarly, the yearly cost of parking and sales tax in places like New York or California is demonstrably higher than somewhere like Alabama or New Mexico.
The cost of conducting business within a particular state can have a major impact on your business’ profit margins.
How Should High Cost States Impact Where You Buy Routes?
In order to accommodate these cost of business discrepancies, FedEx Ground models the cost of business by state and adjusts ISP agreements to compensate contractors in high cost states appropriately. FedEx Ground adjusts agreements based on state. Thus, agreements inside of states like Illinois and California receive higher compensation.
These state-by-state adjustments are important and necessary, but an inexact science. You may find that in some areas and route businesses the FedEx Ground agreement more than covers the added cost of business in a particular state. Other times, you may feel the crunch.
The key as you search for routes is to be aware of the financial impact states have on a business, but to not eliminate routes for sale simply because they are inside a state known for its high costs.
Remember when you are looking to buy FedEx routes for sale that you are looking for a business with solid financials and a good contract (plus, room for growth). You may find a route business with a fantastic contract in a high cost of doing business state.
Also remember that the financial impact a state has on your business will vary widely within that state. Although the state of New York is known as a more expensive state for businesses, routes in Rochester are likely to have a much lower cost of business relative to New York City.
Do you have questions about how to identify FedEx Ground business opportunities? Connect with our team for one-on-one consulting or consider attending our next New Investor Summit to get more insight on making a smart investment.