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I need help putting a value on a route


burtonridr

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I know this has been discussed a lot, but I'm getting back into the vending business after 4yrs MIA so help would be greatly appreciated. I'm looking at a route that has 25 machines, I dont have a lot of the details yet. However, they are telling me the "machines" have 3-8 heads each, this is mostly a toy and sticker route, that the are claiming earns $800-1000 per month.

They dont have records to back up their claim on the income. They dont know the specifics like how many heads, what brand, how many machines are placed in locations, what is included in the inventory, etc.. They are selling because they are trying to maintain the route part time and dont have the time(dont want to make time) to do it. I'm supposed to hear back from them in a few days with a list of all the details. In the mean time, I'm wondering if I should be asking so many questions... I could miss out on a good deal if someone comes along and swoops it up no questions asked.

They are asking $7500, to me that sounds like a good deal if the route produces $800 per month.

My question is, when I know how many machines, and how many heads on the racks, and the income. How would you value the route?

Also, do anyone know how common it is to ask for partial seller financing on a route this size?

knowing just these details, how low would you want to see the asking price to purchase no questions asked? Or what would you offer without the details?

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Hmmmm...some red flags here. I'd proceed with caution.

I've never purchased a route, but have heard if you can negotiate for 6 mos. gross or less, that's a good deal. In this case $4,800-$6000.

And to answer your question, you SHOULD be asking so many questions. In fact, you're asking some of the most basic questions that anyone looking to buy a route will ask and they're not sure how to answer them. That's concerning to me.

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I have to agree with rdendy if they don't have records the route is worth much much less in my mind. I would want to go see each location and make my own evaluation about the value after I see the locations potiential and the machines. I would offer a number where I thought my ROI would be in the 4 month range. If they had several years of records to back up the potiential income I might push it to 6 months at the max. If they don't like your offer walk away in a few months offer it to them again. Be very very careful this deal sounds shady to me as others have suggusted. Make sure you get a signed reciept that list all locations and equipment being sold. I alway get a copy of the inidviduals drivers license as well. Good luck.

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Not to rain on your parade I am a newbie myself Just started in May and working it like a Big Dog on a bone right now.

Here are some of my Opinions and Math I did on what you asked about.

I wouldn't offer anything with out some more details.

Number of Locations He gave you this. 25

Inventory of what is at each stop from 1-25

What Kind of location each stop is. Restaurant, retail store, grocery store, etc...

How large of an area are we talking about.

Gross cash from each stop for the last 6-12 months.

If you have no records of what each stop is doing then it is just a price for Inventory and machines. The Business side of things has no value. That would put it at Book Value. I would figure 20-30 for every single head 1" toy or candy on location and 75-100 for a sticker machine 50-75 for a 2" machine depending on the coin mech. The more the machine charges the more It is worth to me. Rather then upgrading coin mechs later.

If you can get a general idea from the books on what the route is doing Look to get your payback in 4-9 months.

You can ask for seller financing but for me that would mean at least 50% down and no deal on the price. If you can work up a loan ahead of time from a credit union or other financial institution as a signature Loan borrow enough to run the route for a two months till you can get it to start generating some cash-flow.

The trouble is if you go two years then most of your cash-flow will be eaten up by repayment to the bank.

Look at the math 25 locations divide by 7500 dollars is 300 a location.

800 a month divided by 25 locations is 32 dollars a stop

When you figure the your cost of goods at 25-33% that makes a profit of 21-24 dollars average a stop.

Lets say average profit is 22.00 a stop 300/22= 14 months for a payback and that is figuring Cost of goods No money in your pocket.

I would offer 2500 and would work up to around 3750 not much more then that.

that be at 2500/25 100 a stop

3750 would be 150 a stop.

That would be a 5-7 month payback

I only look for deals that offer a 3-6 month payback according to the records.

You will also have to find what inventory is on the route. How well it is selling and what it will cost to put new items in and maybe upgrade the machines vend prices if needed.

7500 dollar loan these are just a ruff estimation 7500 with interest 12 months would be about 720 a month 80 bucks left you would be losings money and probably have to sell at a discount to get out from under it.

7500 at 2 years would be about 385 - 550 Net profit = 165 a month in your pocket.

4200 pay for route and give some cash for inventory etc..

550 Net profit and 285 a month payment 165 a month Not much but you can handle it for a year with the goal on the other end.

Paid for in a year and your making money. And that is the bottom line.

2 years would be about 234 a month 550 net profit - 234 for debt = 316 net

If you had Cash it would be an OK deal but if you have to borrow to do it you need to get a great deal and even then it might be tight a couple months of the year.

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Thanks, you all confirmed what I'm thinking. Obviously I need more information, are there any other questions I should ask? Other than whats on the "mega beginners buying thread"?

BigRed, you gave me some of the numbers I was looking for to value the route when I get a little more information. BTW I would only be borrowing half the amount to finance this deal. However it sounds like he is over valueing the deal, so I may have to finance less.

I'm going to meet with the sellers on friday, I dont think we will get to viewing the route locations. I'm going to get a look at the machines that are not placed, check out the inventory, get addresses of all the locations, and pick their brains for any information I can.

Any suggestions on questions I should ask or how to bring down the sellers expectations a little so we can arrive at a lower valuation would be great :)

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And to answer your question, you SHOULD be asking so many questions. In fact, you're asking some of the most basic questions that anyone looking to buy a route will ask and they're not sure how to answer them. That's concerning to me.

Why would this be concerning to you? Eventually I will get the questions answered, or I will walk away.

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Any suggestions on questions I should ask or how to bring down the sellers expectations a little so we can arrive at a lower valuation would be great :)

Either they know that they aren't worth what they are asking, why they say they have no records, or they have no idea of their value, again because they don't know anything about the route it seems, either way they know it's not worth that much or they know they don't know so I am pretty sure their hopes are high but their expectations aren't. I wouldn't worry about it, find out what you need to know, make an offer, leave it in their court.

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Thanks, you all confirmed what I'm thinking. Obviously I need more information, are there any other questions I should ask? Other than whats on the "mega beginners buying thread"?

BigRed, you gave me some of the numbers I was looking for to value the route when I get a little more information. BTW I would only be borrowing half the amount to finance this deal. However it sounds like he is over valueing the deal, so I may have to finance less.

I'm going to meet with the sellers on friday, I dont think we will get to viewing the route locations. I'm going to get a look at the machines that are not placed, check out the inventory, get addresses of all the locations, and pick their brains for any information I can.

Any suggestions on questions I should ask or how to bring down the sellers expectations a little so we can arrive at a lower valuation would be great :)

Well just run the numbers with him. Like I said I bought a small route and got a good deal. It breaks down as long as you can get it for less then you can build it you have a great deal.

Extra equipment is just Icing on the cake but the route and any inventory is where your making your money and keep your focus on T that aspect. Keep any added machines secondary. If they are in the business of running the route then they will want to keep some of the equipment just for back up and emergencies

What is sounds like is there comfortable with the route and now selling off some of the Mac & Cheese / Hamburger helper stops and keeping the Prime rib and Filet Mignon. Just want to price it in the Filet Isle and not the Mac&Cheese Isle If your only averaging 33 bucks a stop then It might be worth just to by most the equipment 33 bucks isn't much for a 5 way rack to make. If you said you had 25 stops mostly all racks grossing 2000 a month i would of said jump on it. It is all about value and I don't see much from what you have shown.

Just let them know you have cash and are willing to walk.

If you do get it work on product changes also or move product around from stop to stop they also might have gotten lazy and not put anything new in for a while and the people the frequent are board with the selection.

I do notice like at Wal Mart and Krogers that the racks there are always changed regularly. Something New in all the time. Keeps people coming back to see what is in the machines especially kids.

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Either they know that they aren't worth what they are asking, why they say they have no records, or they have no idea of their value, again because they don't know anything about the route it seems, either way they know it's not worth that much or they know they don't know so I am pretty sure their hopes are high but their expectations aren't. I wouldn't worry about it, find out what you need to know, make an offer, leave it in their court.

What rdendy said. This is why I'd be concerned. If they don't know what type of machines they have or how many there are, then where does $7,500 come from? A guess as to what the route is worth?

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Shooting High It If it is there route. It could also have belonged to a parent other relative and the operator just kind of inherited the stops. It is probably shoot high and see what some sucker will pay. I found a guy that had machines from his dad's route He just went and picked them up. Selling them for 50 each.

That would explain some of the issues no books or records on what it dose or what machines are on the route.

For the price Aim high and hope you get as much as you can. That is probably how there looking at it or at a few overprice ebay machines to get there value on things.

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