Tag Archives: last mile

The Nuances of Mergers and Acquisitions with a 1099 Workforce

The advantages of working with independent contractors, also known as 1099 workers, cannot be overstated.

Specifically, if you’re running an operation relying on 1099 workers, you aren’t required to pay the employer portion of Social Security or Medicare for them. Additionally, you don’t typically need to provide traditional employee benefits, such as health insurance or workers’ compensation insurance.

Put simply: the savings can be massive. Nonetheless, having a 1099 workforce model creates its own set of challenges, especially when it comes time to sell your business; it can add a layer of complication to the deal.

While right now may be too early to sell your business, it’s never too early to put in a robust compliance framework to ensure that your business is following the right growth model ahead of its sale. This is especially true given that deals involving businesses relying on the 1099 model can be burdensome and tough to navigate.

One of the first steps toward making the decision about whether or not your company is ready to be sold is understanding where your company is in the business lifecycle: seed and development, startup, young growth, high growth, or decline mode.

“You’re never too early in the cycle, but you can get too late in the cycle,” explains Mike Fiorito, an Openforce board member, in a webinar diving into what you need to know about 1099 workers. This is especially true if you’re in last-mile logistics.

Joining Fiorito in the webinar — teasing out the nuances of how to increase the valuation of your company, establishing a narrative, dealing with changes to a 1099 model, and a myriad of other factors with regards to mergers and acquisitions — are G2 Capital Advisors COO Ben Wright and Newhouse & Faino LLP Partner Ben Faino.

Here are some of the most important takeaways:

Get Started Early

Once you’re beyond the seed and development point of your business’s lifecycle, you can only benefit from establishing a strong compliance framework, while taking into account the current point of the economic cycle and the specific economic movement in your market.

The goal is to align this compliance framework with your long-term growth strategy early on.

There’s No Better Time Than Now

As has been true for the last three to four years, there’s been no better time than now to sell your business, especially if you’ve carved out a defensible niche in the last-mile logistics market.

The question a lot of owners are asking themselves is: Do I really want to wade through another recession?

Weighing on either side of that question are the benefits of several more years of organic growth versus the monetization opportunities of selling the business or merging the business now.

The current availability of capital in the marketplace, as well as the strong amount of dry powder and appetite to consummate deals, continues to push a lot of owners toward cashing in and selling their business.

Overall, it’s a cash-flush moment in the economy with regards to investors looking to drive growth through mergers and acquisitions. This creates a highly competitive market for mergers and acquisitions — which is great for sellers.

Not Ready to Go to Market

Even if the economic conditions are ripe, not every company is ready to go to market.

During a readiness assessment, there are certain red flags that might mean your company isn’t ready to go up for sale. The most obvious factor is your underlying performance.

Some 1099 worker reliant companies dealing with last-mile logistics have struggled to compete in a marketplace turned upside down by Amazon.

If that’s the case for your company, it’s important to bring experts on board to help shore up margins, fix revenue growth issues, and help you establish a strong narrative that can be presented to buyers.

Buyers will also be looking at how robust your third-party administrator infrastructure is, how well you’re leveraging outside legal help, and ensuring that your business practices reinforce your independent contractor model — rather than undermine it.

Changes to a 1099 model

If it’s necessary to make changes to your 1099 model as part of revamping your compliance program, the sooner you’re able to firm up your company, the better off you’ll be.

This is why it’s recommended that company owners look to bring on capital advisors and a legal team 12-18 months before putting their business on the market.

The bottom line is that if you end up making a number of changes to your 1099 workers model, a buyer is going to want to see a track record under those changes where the growth rates and business processes are not showing any signs of erosion (or other negative impacts).

Potential buyers will be looking at a number of key metrics following those changes, including earnings before interest, gross margins, EBITDA margins, pre-cash flow conversion, and revenue growth rates.

Educating Employees

One of the most important aspects of the merger and acquisition of a company reliant on 1099 workers is educating employees.

For last-mile logistics companies, these employees are the ones who are dealing with 1099 carriers on a daily basis. It’s important that your employees fully understand the goals of the change and how to implement them.

Along these same lines, it’s necessary to create clear lines of communication between your company and your independent contractors. By ensuring that everyone has a complete understanding of expectations, it is less likely that issues will pop up when moving forward with this type of model.

Final Thoughts: The Nuances of Mergers and Acquisitions with 1099 Workers

The entrepreneurial and growth opportunities presented by the establishment of a large 1099 workforce has caught the eye of many strategic and financial investors. This is especially true for those interested in last-mile logistics, where white-glove, assembly, lab, and big-and-bulk shipping companies have managed to carve out lucrative, niche markets for themselves.

However, understanding how to build the necessary narrative to sell such businesses, as well as the due diligence and infrastructure needed, gets complicated. Bringing on a good technology solution or managed service provider to manage 1099 workers early on can close compliance gaps and move the deal along much easier.

Watch the nearly 50-minute webinar to get the full picture of a typical merger or acquisition involving 1099 workers. Fiorito, Wright, and Faino breakdown everything else you need to know about the 1099 workforce.


Watch the 50-minute webinar
 

The Value of Ongoing IC Training

Tens of thousands of courier and last-mile drivers perform deliveries across this country every day, many of them with little or no formal training or education. It happens daily. Couriers walk out of clinics with specimen bags bundled and clasped with their bare hands. Last-mile delivery teams accidentally scratch the flooring while setting up a new living room or installing a refrigerator.

There are best practices in every instance to help ensure the safe and proper delivery of items. Yet, some retailers, laboratories and freight forwarders use certain companies because they are the most cost effective. However, there is an underlying potential cost, which is the risk involved in the improper handling of goods and a lasting negative impression on your brand.

What could go wrong? Unfortunately, a number of things if independent contractors do not have the proper training and are unaware of best practices. Recognizing that the handling, installation and delivery of merchandise into the customer’s home or specimen to a laboratory is the last opportunity to ensure customer satisfaction also magnifies the importance of independent delivery professionals that are properly trained.

Companies who are concerned about the high quality performance of independent contractors often ask, “Can I give an independent contractor a training course or manual?” The answer is “No.” This is a very dangerous high risk practice that can jeopardize their IC status. So who is informing and training the independent drivers you rely on with the proper knowledge to help ensure a smooth delivery from start to finish?

MEMBER BENEFITS SPOTLIGHT: TRAINING IN MEDICAL DELIVERY

To help fill this gap for both contracting companies and independent contractors, Openforce offers an array of resources for its members, including the most comprehensive medical training programs.

For the discounted Openforce member rate of $41.00, regularly priced at $89.95 for non-members, contractors will have access to live, interactive webinars covering the basics of medical courier training, blood borne pathogen awareness, and best practices with OSHA compliance, including:

  • Medical definitions
  • Hepatitis ABCs and prevention
  • In-depth, courier-specific perspective on HIPAA (patient confidentiality)
  • Specimen transportation guidelines and specimen integrity
  • Biohazard awareness test
  • OSHA requirements for blood borne pathogen awareness
  • Understanding the difference between Category A, Category B and Exempt specimens

 

IC BENEFITS & EASY SETTLEMENT DEDUCTIONS

Find out how you can provide the best possible medical courier service in your area through Openforce’s Member Benefits and increase your influence in the medical community. Independent contractors can access this exclusive benefit in your IC Portal. Once completed, contractors will receive a certificate of completion, demonstrating a higher level of training and compliance to medical courier delivery standards. Additionally, Openforce members receiving settlements through IC Pay can take advantage of paying for these services through settlement deductions.

At Openforce, we understand the independent contracting model and the competitive advantage our products bring to quickly onboard, verify and pay independent contractors on a single platform. In fact, Openforce customer experience a 30 percent decrease in contractor turnover when compared with the industry average in transportation.

Contact us to today to see how you can simplify everything IC and help ICs stay contracted with highly personalized tools, education and benefits available 24/7.

 

Whitepaper: Dart Transit Company

In 2015, the General Counsel for Dart Transit Company, Doug Grawe, had grown tired of the headlines. Grawe knew misclassification cases had led to $6.9 million in penalties for Pacific 9 and a $228 million settlement for FedEx. Would Dart be the next to make headlines?

Fortunately, the answer was ‘no’ because Dart had decided to take the leap to a new way of contracting with its owner operators. No penalties would be levied. No articles written. But the risk of continuing to use a hard copy paper contract system to manage the company’s 1,400 owner operator contracts was inescapable.

For Grawe and Dart Transit Company, that better way was Openforce, a cloud-based online onboarding technology solution that streamlines owner operator contracts, provides an online database and helps ensure compliance.

“In today’s day and age of misclassifications you’ve got to make sure you’re crossing your t’s and dotting your i’s,” Grawe says.

But many companies aren’t taking those precautions. In fact, 44 percent of all companies haven’t automated their onboarding process, according to a Careerbuilder.com survey. But as the government encourages states to crack down on owner operator violations, many trucking companies who are still doing paper contracts may be putting themselves in jeopardy.

And companies that continue using old school hard copy contracts may be more at risk. That’s because those outdated methods are mired in inefficiencies and inaccuracies. In fact, hard copy, hand filled-out contracts can be as little as 10 percent accurate. That kind of haphazard owner operator contract management hardly puts trucking companies in a position to capitalize on the phenomenal growth the industry is expected to experience over the next five years.

Companies such as Dart that can ensure fast, accurate onboarding of owner operators are sure to have a competitive advantage in this fast growing market.

How Openforce Works

As Dart Transit discovered, Openforce’s innovative technologies help speed, manage the owner operator contract management lifecycle, and remove inefficiencies from the process. Finding and securing quality owner operators takes a host of complicated management practices and process protocols to ensure owner operators have freedom, choice, and time:

  • Sourcing
  • Clearance
  • Proper contracting
  • Compliance with state and federal regulations
  • Certifications of skills
  • Accurate, timely payment for services performed

In addition, owner operators present unique challenges in risk, logistics, quality and compliance. The nature of owner operator relationships further complicates matters. For example, owner operators decide their own elections including:

  • Occupational accident insurance
  • Base plates and permits
  • Heavy highway vehicle use tax
  • Fuel services
  • GPS service
  • Maintenance reserve accounts

“For each contractor there are dozens and dozens of different iterations of how the contract looks based on their individual situation,” Grawe says. “There’s no standard one-size-fits-all contract packet that everyone signs. And every time an owner operator makes a business decision, that can lead to a new document in the contract.”

Seven Best Practices that Optimize Dart’s Owner Operator Management

So just what are the best practices of automating owner operator contract management that’s also in support of compliance? Download the whitepaper to take a closer look at the technology-enabled solutions Openforce’s platform provided to optimize Dart Transit’s processes.

Download the Full Case Study

Last Mile: The New Frontier

Getting shipments delivered on time while battling the constant shortage of drivers is no easy feat. And that’s before even knowing if the independent driver is qualified to provide services and ready to hit the road.

According to the American Trucking Association’s quarterly report, the pace of driver turnover at both large and small truck fleets rose signficantly in the second quarter of 2017.

For large carriers with revenue of more than $30 million, driver turnover rose 16 points to 90 percent, up from 74 percent in the first quarter of 2017. That’s the largest quarterly jump since the fourth quarter in 2010, according to the ATA report. Small carriers with less than $30 million in annual revenue fared slightly better, but also experienced double-digit turnover rates in the second quarter, rising 19 points to 85 percent, up from 66 percent in the first quarter.

Driving at Optimal Performance

As businesses manage against unpredictable demand, increased volatility, and rising costs, companies like UST Logistical Systems are turning to IC management software to replace manual processes that create logistical roadblocks for their business.

ustlogo.pngUST Logistical Systems is a national third-party logistics provider specializing in the “final mile” delivery of furniture and appliances—from the retailer’s warehouse directly into the customer’s home. With more than one million annual deliveries and approximately 1,000 team members in motion, UST Logistical Systems turned to Openforce’s cloud-based solution to streamline all aspects of IC management including:

  • Faster onboarding
  • Contracting the right way
  • Settlement processing
  • Risk controls requirements
  • Compliance audit

“Once the Openforce system was in place, a major pressure point was released. The Openforce automated platform is completely worry free and we can focus our time on more strategic priorities.”

Tekisha Roberts
Compliance Director

Download the Full Case Study
Learn how UST Logistical Systems accelerated its onboarding, and established best practices and compliance automation, to align with the high standards of the company brand.