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Buying an existing business, should I?


Rustinm

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Hello, it's been a while since I've posted on here but I have been out of the game for a while. I am looking at buying an existing full line business that currently has 38 locations, 6 of which are cigarette locations. The remaining 32 are mostly snack locations with a few having pop machines. The gross sales last year was around 65k. The owners are looking to retire at 72 years old and are going to sell the business for 40k which includes all locations and machines, extra machines, and an old econoline van. Does this sound like a good deal? I think if you price it at 1x gross sales this should be a steal of a deal. Many locations don't have soda due to the owner not wanting to lift heavy cases all the time. I believe soda machines should be easy to add to the existing locations to bump up sales. Also, they told me that they had not raised prices in 5 years and everything was priced low.

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be careful with the low prices, sometimes its hard to raise prices to a profitable level without upsetting locations. Adding soda will surely help, but will also be a big expense with all the equipment, but probably worth doing. I think that as long as he can show you records of his earnings and the equipment is descent and not a bunch of combo's then the price is probably pretty good for this level of business, however usually a seller will throw out a negotiable price starting out so there is probably still some room to come down. I would also definitely want to do a ride along so there are no huge surprises if you were to buy. I'm sure others will chime in soon with more info, but it don't sound so bad to me!!

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Your concerns will be the age of machines, especially if he still runs cigs that don't sell well at $10+ per pack, the low prices and the lack of interest in the business to not be running soda machines. You should expect machines to be old and ugly with old metal bill validators, etc. You should require them to raise the prices before you take it as they should have a good relationship with the accounts which makes it easier for them to do. You will definitely want to boot any other soda out and do your own.

You will want written records to prove sales and to see the accounts beforehand as well as Jerry said. Negotiate on equipment condition, prices and no soda.

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Hello, it's been a while since I've posted on here but I have been out of the game for a while. I am looking at buying an existing full line business that currently has 38 locations, 6 of which are cigarette locations. The remaining 32 are mostly snack locations with a few having pop machines. The gross sales last year was around 65k. The owners are looking to retire at 72 years old and are going to sell the business for 40k which includes all locations and machines, extra machines, and an old econoline van. Does this sound like a good deal? I think if you price it at 1x gross sales this should be a steal of a deal. Many locations don't have soda due to the owner not wanting to lift heavy cases all the time. I believe soda machines should be easy to add to the existing locations to bump up sales. Also, they told me that they had not raised prices in 5 years and everything was priced low.

On the face of it, this sounds like a good opportunity with so many soda machines needed.  If the machines are extremely old you may find that all you're really buying are the locations.  Check your local regs regarding the cig sales, you may find that you'll need a very expensive permit to do this.

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Thanks for the responses guys. I have had many of the same thoughts and concerns. The age of the equipment is something I was thinking about right away but I also would think that if the machines are in good working order now then I should be able to replace and update over time. The cigarette locations don't sound like they are a high profit part of the business and If permits are an expensive issue I would certainly not be hesitant to pull them out and try to get a different type of business in those locations. Im not sure where they are but maybe if they are in bars there will be opportunity to pursue Breathalyzer machines or even small arcade games in those locations. My game plan for the business is to maximize the existing locations before I even think about gaining more accounts. As far as the low prices go I am happy to report that they thought about the same thing and a few months ago they did raise prices so next years sales should be higher. These people have been in the business for 50 plus years, they got the business from her parents. At one time they had 200 plus locations. I questioned why they lost so many locations and they told me that they used to be in a lot of gas stations before they had stores built into them and at one time had a lot more cigs but that is obviously a fading business. Now that they are older they are not trying to grow at all because at his age he can not handle any more than he is doing. They are sending me all of the financials currently and I should have them within a couple days. They have had an accountant for a long time that has handled tax returns and I will be getting all of that info shortly. Another thing I would like to add that will come with the business is their wealth of knowledge that they have gained over a 50 year vending career. I know that's hard to put a dollar amount on but it has to count for something. They have assured me that they will help me with whatever I need to know and will take me to all of the accounts before I buy anything. These people are very nice and genuine and I really think this has a lot of potential to be a very profitable business.

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Thanks for the responses guys. I have had many of the same thoughts and concerns. The age of the equipment is something I was thinking about right away but I also would think that if the machines are in good working order now then I should be able to replace and update over time. The cigarette locations don't sound like they are a high profit part of the business and If permits are an expensive issue I would certainly not be hesitant to pull them out and try to get a different type of business in those locations. Im not sure where they are but maybe if they are in bars there will be opportunity to pursue Breathalyzer machines or even small arcade games in those locations. My game plan for the business is to maximize the existing locations before I even think about gaining more accounts. As far as the low prices go I am happy to report that they thought about the same thing and a few months ago they did raise prices so next years sales should be higher. These people have been in the business for 50 plus years, they got the business from her parents. At one time they had 200 plus locations. I questioned why they lost so many locations and they told me that they used to be in a lot of gas stations before they had stores built into them and at one time had a lot more cigs but that is obviously a fading business. Now that they are older they are not trying to grow at all because at his age he can not handle any more than he is doing. They are sending me all of the financials currently and I should have them within a couple days. They have had an accountant for a long time that has handled tax returns and I will be getting all of that info shortly. Another thing I would like to add that will come with the business is their wealth of knowledge that they have gained over a 50 year vending career. I know that's hard to put a dollar amount on but it has to count for something. They have assured me that they will help me with whatever I need to know and will take me to all of the accounts before I buy anything. These people are very nice and genuine and I really think this has a lot of potential to be a very profitable business.

I should add that usually your best values in routes for sale come from vendors retiring rather than from active vendors seeking to dump their low hanging fruit.

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That's a good point. I think it needs some work and updating but I think I can return it to its former very profitable glory. What do you think about the amount of money it makes relative to how many locations it has. If there is 32 non cig locations and 6 with cigs is 65k gross revenue a good figure for that amount of stops or is that pretty low? Keep in mind there isn't much in the way of soda in these locations.

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I should add that usually your best values in routes for sale come from vendors retiring rather than from active vendors seeking to dump their low hanging fruit.

 

For sure. The biggest percentage of my sales are from soda. I would think that  you could really boost your sales big time by adding soda in most of those locations.

That's a good point. I think it needs some work and updating but I think I can return it to its former very profitable glory. What do you think about the amount of money it makes relative to how many locations it has. If there is 32 non cig locations and 6 with cigs is 65k gross revenue a good figure for that amount of stops or is that pretty low? Keep in mind there isn't much in the way of soda in these locations.

 

65k/32 locations/52 weeks = $39 per week per machine. Not stellar, but not bad and like I said most of the sales will be from soda from my experiences, so most of those locations should be right around $100 per stop with soda and with the prices increased properly.

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That's great! What do you suggest I use as far as soda machines go? I would like to go with a good quality used machine since there are so many machines available 2nd hand on craigslist around here. Obviously I havnt been to the locations yet so I don't know what kind of space limitations I will have and I don't know how many locations will want a soda machine. Im pretty surprised that they havnt lost locations due to not supplying a soda machine. It seems like most places would want drinks more than snacks. Also, would it be smart to sign up for third party vending to start and then slowly work my way back to private owned machines as I can afford to do so? My thinking on this would be that it would give me the opportunity to grow the business right away without having to put tons of capital into the business all at once and then phase them out a little at a time.

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I still have a few third party machines, and In my opinion its better than not having a soda machine at all. The product is high, but I find it manageable. I am slowly buying my own machines though because I don't like being under the big bottlers control. As far as what machines to get, I would stick with Dixie narco, vendo and royal. Everyone has their favorites on here, but they are all pretty good machines. Try to find machines that are capable of bottles and multiprice if possible, because they can vend cans or various bottle configurations (usually haha). If you end up with the route you will figure out pretty quick that not all your locations are superstars and can be serviced every 2 weeks or more, but you will probably have some that demand weekly service. The ones that demand weekly service are the ones that I would be wanting to get soda in asap. Also that $100 average per location was just a guess, don't let $ cloud your vision and ask the owner plenty of questions and do ride alongs to make sure that everything is as said.

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I would imagine that most of the locations have bottler machines as most vendors don't like sharing accounts but the bottlers will take just about anything. You can easily kick the bottlers out and do your own or maybe take over the bottler machines yourself on a third party lease. You definitely want the soda business because that generally outsells snacks 2 to 1.

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All great advice, I really appreciate it. What do you think of the glass front machines that have tons of selections? I know that the shop I work at uses a pretty cool service that is pretty much set up like a convenience store with a self checkout pos system that is all touch screen and fancy but I know the one thing that sells more than anything is monster energy drinks and that's at 2.45 a can. Very nice mark up. Is it worth getting a machine that can handle things like that or would I be over complicating things by offering that many selections? If I could hit 100 per stop that would be amazing. Early retirement from a shop kind of money. I know that the current owners get calls sometimes for new locations and they don't do it because of their age so I think I should be able to expand without too much effort.  How many full line locations can a one person operation handle? My brother will work for me part time but I don't think he will be able to long term since he is going to college currently. I would like to go full time at some point but I know I am far from ready for that right now. I already work a lot but this seems like an opportunity to work toward self employment.

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Glassfronts are pretty cool, but expensive and a lot more moving parts. I like the simple stacker style machines if your locations are not demanding glass fronts. The convenience store thing is a micro market setup, and that would make me really nearvous to trust people that far with no supervision against theft. I run monster drinks in a lot of my machines and they don't sell for me as well as some of the sodas, and most machines can handle monsters, but they need to be multiprice so you can set the price higher than your sodas. Like I said earlier, don't get too excited, $100 per stop is pretty good in my book, but its a lot of work too and you will probably pocket around $40 bucks after all expenses and possible commissions. As far as  how many machines one guy can handle, I would say about 100 (considering 50 snack/soda locations) as long as they are fairly close together geographically. Allen Watson on this forum handles around 130? I think, so its all about being organized and using your time efficiently.

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Even at $40 per location, if that is able to be done weekly, that's a lot of net income for the year. Over 60k working part time or paying a part time employee is a pretty good side gig for the cost of 40k. I may not get rich off the current locations but it will open up a lot of opportunity considering I already make pretty good money at my job. Im very excited about this thing. I hope the financial statements are what they say they are.

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Buy it and run it just the way it is for a few months to get the feel of it and meet the owners/managers of the locations. Once you earn their trust you will be able to add the soda machines easily. Don't worry about old machines, if they have been maintained and are good quality you will make money with them. I purchased a similar route with the same scenario and it worked out awesome. I bought 70 machines in 35 locations with 20 spares 5 years ago for $50k. The owners carried the loan and it is all paid off now. Life is good.


Keep in mind that if the business brings in $60k gross and you run it right you can expect to pocket 25% of that. So your $40k investment will actually make you $15k per year.

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That's a good point. I think it needs some work and updating but I think I can return it to its former very profitable glory. What do you think about the amount of money it makes relative to how many locations it has. If there is 32 non cig locations and 6 with cigs is 65k gross revenue a good figure for that amount of stops or is that pretty low? Keep in mind there isn't much in the way of soda in these locations.

Let it run for a couple of months and gear the size of your soda machine to the required service interval of the snack machine.  Remember that soda sales normally outperform snack sales two to one so you should have a good opportunity here.  As a rule of thumb, I always install the biggest machine that will fit and the Royals are my favorite.  Most of your sodas have a ten month shelf life so I tend to load them and forget them.  As far as stale products go, almost anything will sell out in that time frame.  Stick with the basic stackers for now.  I know that the elevator machines may look cool, but they only hold 400 drinks - each of those selections you see is only eight cans deep and they're a golpher to load compared to the basic stacker style.

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I would like to keep it all as simple as possible, I thought about glass fronts because of the amount of selections but I have worked on one without the crane in it and there is a lot of moving parts in them. I am going to change as little as possible for a while and get the feel for the route and locations. I don't want the locations to kick me out because I'm the new young guy vendor and I'm changing the service. This business has been running for a long time and I think that they have probably had some of these locations for 20 plus years. I have a lot of research to do on these machines, I'm used to my little old vendstars. How much can a full line route make with one person? Do we have any vending millionares on here??

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A roite with one person.. there are many variables such as the state of the economy in your area, the type of accounts available (white collar, blue collar, big accounts with 200+ people, small accounts with less than 30 people, etc..), your speed and efficiency, your vehicle size, your ability to reload, your equipment, your machines, etc..

I will say this. In most of the midwest, I expect anyone to be able to gross $100/hour as long as they have decent accounts and they are moderately healthy. A fast driver can do about $8000/week.

Keep in mind.... this is only stocking. Repairs eat up time, bookkeeping can be done at home but there's a lot I do in the route, such as banking.

As an owner, I only plan on going to $4000/week before I either stop growing or hire a driver. I can currently do 1800 in three days using my car, but I could easily do 8000 in a week with a large vehicle, a dedicated repair tech, and good accounts. I have gone over 10,000 in the past as a driver but I put in 70 hours.

With that said, as a one-man show, I don't see myself netting more than about $65,000 in a year unless I get some real monster accounts.

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That's good to know, I am limited on time because right now I work 12 hour night shift, it sucks. My brother wants to work for me so as long as I can afford it I will have him as a driver for a couple days per week. I know that will cut into profits but i would like to be able to grow the business a lot and I'm not sure I could do it alone and work 60 hours per week at night. The business comes with a ford econoline so vehicle size shouldn't be an issue. 10k per week is amazing, but I'm guessing you were probably netting around 2500? That's good money if you can do it all the time. I have seen a lot of routes for sale around here lately, Id like to know why there is so many. Maybe it's just a good time to get into the business cheap.

How often do you have to do repairs? If you are talking about having a dedicated repair tech then I'm assuming you get a lot of repair calls. What are the biggest issues with these machines?

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That's good to know, I am limited on time because right now I work 12 hour night shift, it sucks. My brother wants to work for me so as long as I can afford it I will have him as a driver for a couple days per week. I know that will cut into profits but i would like to be able to grow the business a lot and I'm not sure I could do it alone and work 60 hours per week at night. The business comes with a ford econoline so vehicle size shouldn't be an issue. 10k per week is amazing, but I'm guessing you were probably netting around 2500? That's good money if you can do it all the time. I have seen a lot of routes for sale around here lately, Id like to know why there is so many. Maybe it's just a good time to get into the business cheap.

How often do you have to do repairs? If you are talking about having a dedicated repair tech then I'm assuming you get a lot of repair calls. What are the biggest issues with these machines?

Your biggest issues will be replacing your coin mechs and validators.  AZvendor can supply you with refurbished units for a reasonable price with a core exchange.  Anybody that can't replace these themselves should not be in this business.  In the long term, it's good to standardize these as much as possible so that you can carry spares with you - saves a lot of down time.

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That's good to know, I am limited on time because right now I work 12 hour night shift, it sucks. My brother wants to work for me so as long as I can afford it I will have him as a driver for a couple days per week. I know that will cut into profits but i would like to be able to grow the business a lot and I'm not sure I could do it alone and work 60 hours per week at night. The business comes with a ford econoline so vehicle size shouldn't be an issue. 10k per week is amazing, but I'm guessing you were probably netting around 2500? That's good money if you can do it all the time. I have seen a lot of routes for sale around here lately, Id like to know why there is so many. Maybe it's just a good time to get into the business cheap.

How often do you have to do repairs? If you are talking about having a dedicated repair tech then I'm assuming you get a lot of repair calls. What are the biggest issues with these machines?

 

Those few times I grossed over 10k per week.... I worked for a company, so I probably netted $650 in the form of wages and overtime after taxes lol.

As for the repair tech... when you get big enough that you are grossing almost 4,000 per week, every other task will eat up so much time that you will have a difficult time doing things like.. changing out refrigeration decks....upgrading machines, etc...  As moondog said, most repairs mean changing out a coin mech or validator which is easy.  I am really just referring to the fact that there isn't time for those OTHER repairs that come up without skipping some accounts.  This only happens when you gross enough money that you can afford some help.

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Hey guys, I have an update. I went and met with the owners today and i must say i am on the fence about the whole thing, maybe my expectations are too high. There are few things that I see as negatives and I would like your opinions. First of all, looking at the tax returns for 2010, 11, 12. The gross sales were 105k in 2010 and sunk down to 67k by 2012. They told me that the economy has had a big impact on their business but they have assured me that it still did over 65k last year. I was unable to see the tax records from 2013 since they haven't got the paperwork from the accountant yet which leads me to another issue. Their lack of inventory tracking or information about how much each of their locations make is astounding, they don't track anything at all, they just keep all of their reciepts and they take all of them to the accountant. They said that they have been doing it so long they don't feel the need to keep track of things like that. Keep in mind they are very old school, they don't even own a computer. They are 71 years old. So needless to say I am a little worried that the sales are less than they think they are currently although they raised prices to 1$ on candy 6 months ago. They said they will snail mail me the newest tax returns in the next couple weeks. The next issue is the age of the machines. I know that most of the large snack machines are pretty much all the same but they do have national candy machines from the 60's still on route. I understand of course that these can be upgraded after I buy everything but my concern is the value of the machines compared to the 40k asking price. I am also concerned about the lack of contracts they have with locations. They have commison machines in two school districts which I think could very profitable at only 10 percent commission but other than that they don't have any contracts with locations. They have had some of these locations since they got the business 30 plus years ago and I'm worried that if they retire then the location may not want me to stay in once their long time vendor leaves. Ok, so the upside to this meet. If they are accurate on the numbers then they still have 32 locations with machines that could be upgraded to improve sales and they currently do 0 soda machines which leaves a ton of potential to make this a great business. There is absolutely tons of extra parts and machines. It will take me days of hauling with truck and trailer to pick it all up, everything from snack machines to cigarette machines to all the parts that are used on those machines including bill validators and coin mechs to the motors that drive the spirals in the machines. It is an insane amount of equipment and the near 4 car garage is completely packed to the point that you have to walk sideways through it and there is overflow into the other garage as well. They have also said that they will train me on repairs and I am more than welcome to call them anytime I need assistance with anything, again these are very nice and seemingly honest people. I feel like I should move forward with this but the dip in sales and old machines worry me. What do you all think?

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I believe that you are probably dealing with honest people who are obviously the definition of old school.  There aren't too many people that age running vending routes.  They began before there were computers and they were in it for the long haul which meant they never had to plan for what a buyer would ask them for.  The vending industry has passed them buy and what they don't realize is how that can hurt the value of their business.  It is so ingrained in them how they run this that they won't ever see a need for improving the way the business is run, so that will be up to the buyer.  This is where you could make drastic improvements in both service, selections and equipment. 

 

Unfortunately the value of their equipment could very well be virtually nothing due to its age.  You still don't have model number of machines so we can't give you an idea of equipment value.  National machines from the 60's sounds like pull knob because I don't believe they came out with a glassfront snack until the late 70's, which goes for all manufacturers.  I think you are looking at needing to replace almost everything if they're that old.  Do they have bill validators on any machines?  That will tell you the age of some machines right there if some don't have them.  Once you can give us the model numbers and quantity of each then we'll have something to work with.  I would not put any value on what's in their garage.  I would expect that all of that stuff is not working, not of any value or totally obsolete.  The loose parts may or, more likely, may not work so don't put any value on it at all.  You can only make money with what's on location.

 

Don't worry about the lack of contracts; that doesn't ruin the deal.  These accounts aren't likely just biding time until the owners sell or die to make a change.  They will probably miss the owners but realize that they are due for a retirement so the more you understand and sympathize with the locations about the previous owners the less likely you would be to lose any accounts.  That will happen due to your service more than anything else.  If your service is just as good or better with fresh products, new variety and some machine upgrades or maintenance (such as real price and flavor labels and new lights), you will prove that there's no need to change.  It also sounds like there isn't much competition in your area or someone would have picked off these accounts long ago (or no competitor wants them).

 

Your long term plan has to include a large investment in machine upgrades and into adding soda machines, so this isn't something to do if you aren't prepared for that and those issues must be part of the negotiation, at least as far as the existing equipment goes.

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After AZ's answer, there really isn't much to say. I am glad however that you are weighing out the positives AND the negatives on this deal. I was worried at first that you were going to be blinded by the dollar signs and look past possible deal breakers (if there are any). Just don't get in a hurry and ask questions and if you don't feel right about something, then negotiate and or talk about it with the owners.

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