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Is this a good deal?


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Hi there, I am new to the industry and was wondering if this is a good deal?

 

- Location: Canada

- The business has been in operation for many years and has a solid reputuation

- About 80 machines, 60 of them are owned by the company and the rest  owned by pepsi/coke

- The machines are  old due to the age of the business but I have been told they are more reliable than the newer machines

- Most machines are located in office buildings/factories (typically the set up is one snack and one pop machine)

- Net incomes is 50k after paying the employee 20k

 

I have someone that I could trust to run the business on my behalf but neither or us have experience in this industry. Is there anything we should look out for? I know employee theft is a big thing but I don't think I should have an issue being that the employee will be my close relative.

 

The downpayment will be 100k with 2k monthly payment for the next 50 months for a total of 200k.

 

Any feedbacks would be greatly appreciated

 

 

 

 

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Not really enough info for us to be much help. To net 50k after 20k in payroll, IF the margins are within industry averages you should be around 200k gross receipts. The age of equipment and third party equipment is a huge concern. Without knowing more I could not see paying over 100k total for the business on a good day.

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Hi there, I am new to the industry and was wondering if this is a good deal?

 

- Location: Canada

- The business has been in operation for many years and has a solid reputuation

- About 80 machines, 60 of them are owned by the company and the rest  owned by pepsi/coke

- The machines are  old due to the age of the business but I have been told they are more reliable than the newer machines

- Most machines are located in office buildings/factories (typically the set up is one snack and one pop machine)

- Net incomes is 50k after paying the employee 20k

 

I have someone that I could trust to run the business on my behalf but neither or us have experience in this industry. Is there anything we should look out for? I know employee theft is a big thing but I don't think I should have an issue being that the employee will be my close relative.

 

The downpayment will be 100k with 2k monthly payment for the next 50 months for a total of 200k.

 

Any feedbacks would be greatly appreciated

I'd be a lot more comfortable with 100k - the formula I use is fair  value of equipment including mech money and inventory (60 older machines = 50k) plus three monhs gross (33k).

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Welcome to the forum, popsoda.  If you aren't familiar with vending AND you aren't going to run this yourself then I would advise against such a large purchase.  I have had customers do exactly what you are thinking of and they have all failed at it miserably.  Granted, my customers didn't have this forum to bounce things off of which is an advantage for you, they ran the business exactly as you are thinking about - an absentee owner handing a cash business to someone with no experience.  It's a recipe for financial disaster no matter what the price.  Even if you are able to purchase this for less than asking price, it only means you are going to lose less money when you can't keep it going.  

 

I'm not normally this negative on a deal such as this but the scenario you propose is a red flag for your success and I don't want to see you fail.  I always tell people that there are two ways to get into this business: 1. Start small with one or two machines and grow into it, or 2. Purchase an existing route in order to get instant cash flow.  What you have to realize is that both those pieces of advice are for an active operator who will be doing the work themselves.  While I do not know your exact financial and job situation, I just feel this won't turn out well for you.

 

Lastly, I would consider it another red flag from a purchase standpoint for the seller to claim that his old machines are more reliable than newer ones.  While his statement might be true from the view of an experienced vendor, I suppose I would also tell my buyers that so they wouldn't question the age of the machines.  You need to remember that if you have no experience and won't be even running the machines yourself, that you won't be able to maintain these older machines like the previous owner could with his years of experience. 

 

PS: You can't trust anyone with cash; neither your wife, child, best friend or relative.  Where there is cash there can be theft.  Don't be blinded by what you hope will happen, this has to be a strictly business decision with no emotion in it.  If it makes good business sense to do the deal then do the deal, but put cash management controls in place to protect your money.  Older machines might not lend themselves to route accountability and you could leave yourself open to major theft that you won't realize is happening until there is no money to pay the bills with.

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Not really enough info for us to be much help. To net 50k after 20k in payroll, IF the margins are within industry averages you should be around 200k gross receipts. The age of equipment and third party equipment is a huge concern. Without knowing more I could not see paying over 100k total for the business on a good day.

The gross for the past three years had been in the 250k-200k range. What other information am I missing?

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Welcome to the forum, popsoda.  If you aren't familiar with vending AND you aren't going to run this yourself then I would advise against such a large purchase.  I have had customers do exactly what you are thinking of and they have all failed at it miserably.  Granted, my customers didn't have this forum to bounce things off of which is an advantage for you, they ran the business exactly as you are thinking about - an absentee owner handing a cash business to someone with no experience.  It's a recipe for financial disaster no matter what the price.  Even if you are able to purchase this for less than asking price, it only means you are going to lose less money when you can't keep it going.  

 

I'm not normally this negative on a deal such as this but the scenario you propose is a red flag for your success and I don't want to see you fail.  I always tell people that there are two ways to get into this business: 1. Start small with one or two machines and grow into it, or 2. Purchase an existing route in order to get instant cash flow.  What you have to realize is that both those pieces of advice are for an active operator who will be doing the work themselves.  While I do not know your exact financial and job situation, I just feel this won't turn out well for you.

 

Lastly, I would consider it another red flag from a purchase standpoint for the seller to claim that his old machines are more reliable than newer ones.  While his statement might be true from the view of an experienced vendor, I suppose I would also tell my buyers that so they wouldn't question the age of the machines.  You need to remember that if you have no experience and won't be even running the machines yourself, that you won't be able to maintain these older machines like the previous owner could with his years of experience. 

 

PS: You can't trust anyone with cash; neither your wife, child, best friend or relative.  Where there is cash there can be theft.  Don't be blinded by what you hope will happen, this has to be a strictly business decision with no emotion in it.  If it makes good business sense to do the deal then do the deal, but put cash management controls in place to protect your money.  Older machines might not lend themselves to route accountability and you could leave yourself open to major theft that you won't realize is happening until there is no money to pay the bills with.

 

Those are some great points, thank you for your advice. I am not sure if it changes anything but the owner is willing to provide 1 month training to show us how to service/fix the machines. And because he is still looking for 2k a month for the next 50 months, he will have a vested interest in us succeeding. At this point I am almost certain, this is not a good deal for me given my situation; however, I still wonder if this deal makes sense if we only talking about dollar values. How dose one evaluate the price a vending machine business given the financials available?

 

 

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The price you ultimately pay should take into consideration the value of the machines (not counting bottler-owned) based on their model numbers and condition, whether all machines have bill validators, the pricing of the products by category, commissions paid, contracts that are in place, age of accounts, value of product inventory, value of coin inventory, value of any support equipment such as vehicles, dollies for product and machine moving, safes, debts owed on any equipment, a liftgate truck for machine installation, etc. 

 

You will need to have a very long look at the last two or three years of tax returns to prove the sales volumes he claims and look at the same years of computer records to see if the sales in the business translate to the tax returns.  Check if there any encumbrances including withholding taxes that are in arrears for the employee.  What type of business entity is he now?  You don't want any of his debts or responsibilities to carry over to you.  This might be where you pay a CPA to go over his books.

 

You need to see a list of machines by model number and machine type, such as soda (owned vs. bottler), snack, cold food, frozen food, coffee (countertop or full size).  That list should include serial numbers only because the serial numbers will need to be on your final sales agreement.

 

Have you even seen any of the accounts yet?  Don't do this deal until you have seen the majority of locations to confirm the equipment he is claiming.  You need to see the accounts and machines for yourself.  If you see enough of them you will come to a conclusion of how well he runs the company by the condition of the machines, the way the products are stocked in the machines and the relationships he has with the locations.  Expect to be asked to sign a non-disclosure agreement and a non-compete agreement before seeing anything.  Are all the machines on locks with his own key code or is there a variety of locks in use?  Who does he use for service repairs and/or machine moving and do they have copies of his keys?

 

We can't further evaluate this without equipment information and more detailed income and product pricing information.  You're talking about 80 machines and you can't run any numbers without knowing the totals for the entire business in the categories of sales, cost of products, commissions paid and machine repairs.  Those are your variable costs.  You should also know and factor in the fixed costs such as debt service, vehicle expenses, insurance, taxes, payroll, building rent or payment, etc.

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