Jump to content

Evaluating a Route?


West Coast Vend LLC

Recommended Posts

The bottom line is can you buy the route at a price that: allows you to pay for the route while paying your "wages". Can you duplicate the route with new equipment for the same amount of money. Will you need to move a lot of stuff around or replace older equipment? Take a very hard look at the income and be realistic.

My experience is that upon close examimation charity routes are seldom worth more than 40%-50% of annual gross, commercial routes 65%-75% of gross. There are exceptions of course but they are rare.

Link to comment
Share on other sites

I need a couple of formulas for coming up with the amount of money a route should sell for. This would just be a starting point before I even look at the equipment.

The formula I have seen is as follows:

1. Net monthly sales averaged X 3 months (this is net after all expenses have been paid)

2. Value of equipment (used values)

3. Value of product in all machines at wholesale cost.

Example:

$4,200 month net sales X 3 months = $12,600

Value for all used equipment. = $16,000

Value for all products in machines. = $ 7,000

Value or selling price of this route = $35,600

Lets assume all the equipment is in good working order. It's a route that has corporate and independent accounts.

What do you think of this formula and do you have another way of evaluating the route example I have listed above?

Thanks

Gary

Link to comment
Share on other sites

Net monthly sales? Well thats an idea. If you were to do everything exactly as the current owner the "net" figure would apply. I do not use a fugure like that. I plug all the data I can get from the seller into a spreadsheet that reflects my cost of doing business. Every business is different, do I buy product cheaper, do I pay lower or higher wages, is my insurance higher or lower? etc.

Do the figures you posted represent a real life scenario? A monthly net of $4200 is $50400 annually "after all expenses" thats a lot, what is the gross? I cannot seriously see any one selling a business that clears 50k for 35.5k.

One of the biggest mistakes people make in evaluating a route is the real cost of operations. Using a real life sale; I looked at a route a guy had for $100k he said it netted $30k (pretty high I thought), one problem with the deal was the seller was not really honest about the amount of time he really spent doing the biz, the 30K looked good but not for the labor used, in other words I could not pay an employee to do the route and make money, too many hours and miles at that return. The second issue was the equipment all needed replaced, looking at the business I figured that resetting the stops would run about $52000, that needs to be added to the purchase price because that money will need to come out of operations, so the real "cost" of the route would be $152k, ammoratized over a typical 60 month cycle $2533 is required to come out of the "profit" just too retire the "investment" debt. So as you can see the so called $30k (if that number was honest) simply evaporated.

There are many that would argue with me about this but I have looked at a lot of so called profitable routes that if really examined correctly never really made any money. The money the owner thought they were making was in actuality the owners initial investment being consumed by the depreciation of the original investment vis a vis not maintaining the assets. Once in awhile there are some great deals but mostly you find shattered dreams.

Link to comment
Share on other sites

Archived

This topic is now archived and is closed to further replies.

×
×
  • Create New...