Buying an existing business, should I?

[Rustinm]

Hey AZ, thanks for the response. This is really unfortunate. I feel bad for these people. Its going to be a big blow to them when they find out the route isn't worth anything. It seems like even upgrading all the equipment may not get things to where they need to be as far as sales. At 3k per month gross they must be mostly slow locations. It seems to me that if they were higher volume locations they would have had to replace or upgrade the machines long ago in order to not be kicked out and replaced. So in an effort to leave an open opportunity to maybe buy this later for almost nothing how do I let them down easy without insulting them? I know they are going to take this hard. Im pretty sure I was and am their best hope from retiring from this business. And what should I tell them that it is realistically worth? I need to be able to make her understand where I am coming from when I throw a low number out there at them. This sucks... 

[AZVendor]

You can't worry about how they feel about someone's valuation of this.  They are the ones that have allowed their business to be left in the dust and them expecting to get one year's gross for it is simply unrealistic, regardless of how they feel about it.  The facts are as they are - the machines are old and antiquated and not up to current standards.  They aren't even up to 1990 standards for that matter.  Therefore you simply tell them what your best offer is based on the facts as you know them and if they are interested in selling it to you in the future to please give you a call.  By that time you may not even want to offer what you might offer now depending on the economy or other facts to consider in the future.  Six month's gross is $18K and still too high for what you'll get, so I'd stand firm on something less than that.

[moondog]

Moondog, your saying that the gross revenue for the year should be 100 percent of the purchase price? So if the biz is making 32k per year I should pay around 32k for the biz? What about after expense profit margin, the actual bottom line income?

Not what I was saying at all - your individual product prices should be double your purchase price.  The formula I use for route evaluation is fair value of the equipment plus 3 months gross.  This business unfortunately is not making anything close to 32k a year - more like $16,000 if their pricing is current.  Often you'll see routes like this where the prices have not kept pace with inflation and the equipment is grossly out of date.  You need to tactfully back away from this mess (and I do mean mess).