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Valuing a Route


grumpy
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I'm looking at an existing route, I have just started to discuss this route with the current owner and he is going to get back to me this week. His question was could I afford $50,000.00 and how would I pay.

My question is for existing route operators, how would you evaluate and come up with a number that you would sell for? I can almost gurantee that your evaluation for selling would be different then your evaluation for buying. Please take us through the thought process.

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I will be the first to answer my own post

quanity 30 heads 15 stands and candy to fill

80 a head

6.60 ng coin mech

56.25 double stand

3.45 cash box

.50 display label

25 to fill

$143.68 each add $15 for single order quanity and add $30. for locator qutoe provided by actionmatic for beaver machines and coin mechs

for $50,000

348 units at bulk pricing and no locator

288 units at bulk pricing and locator

265 units at single pricing and locator

315 units at single pricing no locator

now none of this takes in account the value of a seasoned route which is worth what??

Edit.

I did not take into account taxes or delivery $2500.00 in taxes and shipping unknown.

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10% value would be nice, of course I miss the 15% I was getting with my investments.

I have meet the local candyman and even to an amateur like me it is overvalued. So convential wisdom states that purchase are based on gross sales but what do you do for the machines not located they don't have sales but they must have some value.

365 machines beaver all of them 193 on location leaves 172 collecting dust.

Any help or suggestions on valueing this route?

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I think 70% of the yearly gross is the rule of thumb for the machines that are placed based on what I have read. Have the machines that are unplaced been used before? How old are they? What kind of condition are they in? What model Beaver? What can you resell them for? Ultimately that last question is what they are worth. Beaver machines retain their value well from what I have noticed because they are a good quality machine. Some would say they are the best machine. I think they are the best looking personally. If they are unused then I would give 75% of purchase price which for a beaver can be 58-80 dollars if memory serves. If they are used then I would try to go down to 50%. Based on the industry average sales the route would be worth 11,350 for the 193 placed machines. If the unplaced machines are new I would give 7482 to 10320 based on my memory of the price list and depending on the model. If used I would give 4988 to 6880 but depending on model and condition and age. This is just my opinion but this is where I would start if I were the one purchasing the route. I welcome more experienced opinions on this because I may one day be in your position and I would like to know if I am in the wrong frame of mind.

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Thanks for the ideas kpower. I'm not sure I can agree with I'm doing the guy a favour as this is his income.

I just asked Beaver MFG for a quote for 365 machines, I'm located about three hours away. I'm guessing this will be the cheapest way to buy that many machines new. Then I will have a comparison of what the machines are worth.

Then I have to add the value of an existing route; it is at least eight years old, locators seem to run from $30 to $60 per location (not sure for Canada). Then I will have an asset base method of purchasing. That does not seem to be the norm for bulk routes but it makes more sense to me. Currently his asking price is $20 more than a new machine each. I think pricing has changed over the years or the charity base made a great profit in the begining when they bought the machines.

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I meant you are doing him a favor because the machines are just sitting there not making him money. He cannot sell them for the same price as new so you are doing him a favor taking used machines off of his hands for a fair price. You are saving him the hassle of selling them on ebay and having to ship them. Those machines sitting in his garage are a loss to his business at this point.

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  ;) As buyers are we not always doing the seller a favour? :)

I recieved the quote from Beaver Machines and it was very interesting.

Quanity 365 RB16 with New Generation coin mechs with 183 two headed stands. Works out to $96.27 each!

Now the value of the route is the only variable I have to figure. It is interesting that the seller valued his stored machines at $53.73 more than a new machine. It shows you how long its been since he bought any. Note there is about a 10% discount for this quanity already calculated. Shipping is extra, but custom named machines only adds a one time charge of $1,000.00

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Well my suggestion is that you value any business by the income it produces, and not the type of machines they are using.  Although I like Beaver too, that should be a small factor when it comes to making the purchase.  For example:  If I have 30 Vendstars producing $10k a year, vs. 30 Beaver machines producing $10k a year.  Does it really matter how you are producing the income?  Okay so give him a couple thousand more for the quality of his equipment, but don't let him over charge you because he got scammed on a "money making opportunity."  He could have easily built his route with machines off ebay for a much cheaper price!

Anyway back to my original statement, you should value the route on the income it produces...  I like to use a 2 year ROI formula (return on investment).  So if it is producing $10k a year then my selling price would be $20k for the route, and they better have kept detailed records, taxes, all be located for at least 18-24 months to show a stable business.  If not then he would be lucky to get what it is producing annually from me, and honestly I'd probably go lower than that.

RJ

 

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If not then he would be lucky to get what it is producing annually from me, and honestly I'd probably go lower than that.

 

Considering that the standard going rate to purchase a route seems to be about 70% of annual, I think he (seller) would be doing very well to get even 1 yr gross for the route.

Steve 

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Thank you guy's, I do understand the gross revenue part of calculating the bulk route, it's somewhere between 70% and gross. But that only accounts for the machines placed or maybe a small handfull in storage too.

The problem with this route is he has more in storage than located because of illness he let the route fall behind. We are in Canada with free healthcare, but here is the catch, try to find a family doctor, as they retire or die there is not enough doctors to replace them. This gentle man has been doing bulk for over twenty years at one time he and his brothers had over 5000 heads in Montreal area. But he now has diabetes that is under controll but during the last couple of years there were times he would pull over and have a nap during his 1.5 hr ride home because he did not know he was diabetic. This route is at least 10 years old, no they were not burned by biz-op.

So lets do some assumptions. (machine numbers actuall dollars are close but not actuall)

175 heads located doing 30,000 a year, value of 70% to 100% gross for this part of route.

190 heads sitting in garage value of :huh:?

This is were I do not see the gross sale way of valuing a route. What is used equipment; not on route worth?

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To me it is worth whatever you are prepared to pay. The only part of the route that has value is the route itself. If you are comfortable with 70 percent of the gross that is how you should base your calculation. That is all you are really buying. I think this is what KPOWER means by "doing him a favor". Those un-located machines become a burden to you until you find 172 more locations. What is the population of North Bay 53,000? How hard will it be to get another 172 machines out? Where will you store them? How much will that cost?

If you have one extra location you can go out anytime and buy one machine and place it. You really don't need 172 machines all at once. Just coping with 193 on location will take some time to service. You don't know yet how many of those will need to be re-located. 

A fellow I know in realestate that buys lots of houses cheap, sets a figure for a type of house he wants and that is all he offers. He will tell the seller "you know I'm sure your house is worth what you are asking and you will probably get it. I can only offer this much because I am renting and I can only get x in this market. I will leave my offer with you, so you know you can always get this much for your house. If you find that your situation changes and you aren't getting what you want, call me."

As I said he buys a lot of houses.

I think you should treat this as two deals. What do you want to pay for used un-placed machines should be very different than what you want to pay for machines on location. The bigger the pile of unplaced machines the less I would want to pay per machine. Pick a number, A LOW NUMBER, and offer it. You'll will get a much better idea of what he will take. Your price can always come up if you want it to, but it can't go down. You may be very pleasantly surprised by what he will accept. What ever you do make the numbers ones you are happy with.

Ted

 

 

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There is a great new excel worksheet in member PLUS designed in cooperation with NAMA and the Profit Planning Group that allows you to figure out an estimated value of a business based on your input of certain variables. Check it out!

Steve

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  • 1 month later...

Thanks for all of the info on this post!!  I've been struggling with valuing various opportunities - some are way overpriced, and without finding this info first, had told myself that paying more than what the route grosses in one year is not worthwhile.... 

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I am right in the middle of buying a commission rack route from a competitor so Im in the same boat. On my doubles, I usually pay for those and the locator fee in about 7 months so, to me, whenever I buy existing gear or locations, I look for around that same amount of time for ROI.

Jimbo

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