Financing Options

[U2Rocks]

 

When I was looking through the Circuit City circular this morning, there's a big banner on it advertising 0% and no payments for 36 months if you buy one of those nice new TV's.  (I'm about to go in the back yard and burn it since I don't know if I can resist the temptation!)

That got me wondering if any bulk vending equipment vendors offer any type of in house financing with terms like 3 months or 6 months same as cash?  Or do all the supplier pretty much want it all up front?

Right now, I plan to just charge my first few machines I order tomorrow to my Discover (for the pts), and then transfer the balance to a newer card that's got a 0% for a year promo going right now.  Obviously have the machines paid off before the 1 year mark hits.

Hit me back with anything creative that any of you have done!

Thanks!

 

[Bravo Duck]

Don't borrow money for ANYTHING and pay off all that you owe now ala Dave Ramsey. You'll live a much less stress filled life.

[BluePlate]

Both routes I have bought were financed by the previous owner.  I think the key to getting someone to finance a route is when you show up to look at the route show up like you would show up to a customers place. 

While there are plenty of negitives to financing, the cool thing about the vending business - even the $10/month locations can be paid off in 15 months.  Most  any businesses would consider this successful.

My advice:

1.  Go for it, finance a few machines.  2.  Don't over-leverage yourself (know your limits)  3.  When coming up with a plan, be real on income estimate.  (I would estimate $5/head).  4.  Make the pledge to pay off the equipment before you pay yourself. 

[U2Rocks]

Tom,

I'm familiar with Dave's teachings with regards to having ZERO debt.  I just actually finished reading his book, "The Total Money Makeover".  What a great read!

Personally, I'm very close to having the credit card debt paid when income taxes come back to knock that out.  HOORAY!  Next would be to knock out mine and my wife's auto loans and the next the mortgage.  If I remember correctly Dave recommends throwing everything at your debt by cutting expenses and perhaps even getting a second job and working your tail off.  I figured, if I'm going to get a second job, I might as well be my own boss!  Hence giving vending a shot.  I know Dave wouldn't agree that going into debt would be the best way to pay it off, but "to each his own, right?"

With any business there is inherent risk, but I think that's where a well researched business plan comes into play.

Blue Plate, the points you mentioned have kind of been my thought process.  I'm considering starting with 5 Dentyne ice machines and/or 5 machines that vend little toys or candy.  I think that's a good number to get my feet wet with and not be biting off more than I can chew.  Paying those machines off first before paying myself is what I attend to do.

As always, I'll keep you all posted on my progress!

Matt

[nepavend]

If managed properly and you are making a positive cash flow as a result of borrowing, I would go for it.  I appreciate Dave Ramsey and his approach but I think he is shortsighted when telling you to just blindly always pay off debt, never borrow, etc.  If you have a spending problem, cannot control your borrowing, etc, then this is the best way to go for you.  Sometimes you can make a better return on your money in your IRA, savings, and hopefully your vending business than the interest rate of that HELOC or mortgage he wants you to pay off early! 

My approach is a hybrid that takes advantage of borrowing as well as good spending habits (I and my fiancee are out moving in together and to save money we are cutting TV, canning fruit/veggies, and buying whole cows from the Amish, among other budget tightening to give you an idea )  --all to build a successful household and by extension my/our vending business.  I also read Robert Kiyosaki and while he is a putz with a lot of things he says and fluff he puts in his books, there are some common sense nuggets in there.  The biggest one of these is the idea of cash flow. 

Example:  If you borrow $16,000 from the bank at 7% for 5 yrs (~330/mo) for a purcahse of an existing route that has $1200/mo gross sales and about $700/mo net, that is a GREAT use of OPM (other people's money) to go from small charity vending guy for the first year to larger mostly commission paying vending guy the second year (I did exactly this in July 2007, and am still benefitting from it.)

Full Disclosure:  What I am doing is not for everybody, it is a decision you have to make yourself based on your personal financial situation and your beliefs/philosophies/business acumen/etc.  Also you may have a family in the equation which I currently do not have, just my newly minted fiancee.

[BluePlate]

Nepa,

Got my POTD.  The canning the fruit pushed me over the edge!

Anyways OPM is always a good thing.  Financial guru's crack me up.  While they talk about the "perfect world" .  I like Suzy Orman, but some of her advice is just not realistic.  People call her show and say "I have no money, I just lost my job, I'm borrowing from my 401K"  and Suzy will tell them to cut spending.  You never hear her say "1. Cut your cable so you can't see my show 2.  Don't buy my books 3.  Don't participate in any of my gimmicks like my deal with TD Ameritrade."

 

[nepavend]

Blue Plate,

There is a lot to be said for marrying a girl from the country!    I wouldn't have thought of any of that stuff before I met her and her mother.  LOL

[U2Rocks]

Hilarious!

[guile]

Example:  If you borrow $16,000 from the bank at 7% for 5 yrs (~330/mo) for a purcahse of an existing route that has $1200/mo gross sales and about $700/mo net, that is a GREAT use of OPM (other people's money) to go from small charity vending guy for the first year to larger mostly commission paying vending guy the second year (I did exactly this in July 2007, and am still benefitting from it.)

Nepa- You obviously have your ducks in a row. I would fit into the "small charity vending guy" scenario at this point. I know you have moved mostly into commission and imo that's the way to do things. With that being said, your sig indicates you have over 200 machines out there and only a few racks. My question is how do you approach/convince locations with say, a double or triple and entice them with a 25 or 30% commission? If you are grossing even $50 a month at a location, why would an owner care enough to have you put a machine there only to receive $15 or $20 a month? (and this is based on $50 gross which is unrealistic for most locations unless you have a rack)

This is sort of my dilemma with he charity/commission route. Personally, I think a lot of people would rather not bother. But if for charity, they might be more open. Btw, sorry to hijack the thread. Hopefully U2 will find this (important) info useful as well:)

g

[U2Rocks]

I'm here to learn, people. Bring it on!

[Jax Snacks]

My question is how do you approach/convince locations with say, a double or triple and entice them with a 25 or 30% commission? If you are grossing even $50 a month at a location, why would an owner care enough to have you put a machine there only to receive $15 or $20 a month? (and this is based on $50 gross which is unrealistic for most locations unless you have a rack)

This is sort of my dilemma with he charity/commission route. Personally, I think a lot of people would rather not bother. But if for charity, they might be more open. Btw, sorry to hijack the thread. Hopefully U2 will find this (important) info useful as well:)

g

The topic of charity vs. commission can span many pages.  Hopefully,  these replies are kept in the Vending 101 area.  Trying to Not repeat everything.  Here are my additional comments even though they are off topic for this thread.

1. Many Asian/Eastern cultures do not embrace charity.  Chinese, Arab or Indian owned businesses will most likely require a commission - especially if they are first generation immigrants.  You may have some better luck with 2nd generation (their kids)if they are raised and educated here.

2. "Donald Trump" type owners will never give anything for free.  Why should they give you free floor space?  After all, you are making money on their customers and employees.  They want a piece of the action - no matter how small.  There is NO FREE LUNCH in their minds!

3. Some owner's think the charity is a scam.  Some American, European and Hispanic owners (who are more supportive of charity) may be skeptical and reject the charity vending concept.

4. Other Vendors are paying commission.  Video, Crane, Rack, Pool Table and Jukebox vendors all pay a commission.  They expect candy vendors to do the same.

5. Commission vendors may bad mouth your charity.  Commission vendors really hate it when a charity machine get parked next to theirs.  They will usually inform the owner that the charity is a scam and only $1 per month is actually donated.

6. Charity locations are more volatile.  When the ownership changes, the charity machines are at a high risk of being evicted.  Think of a vending machine as a piece of furniture and think of the new owner as someone's wife.  The wife hates that piece of furniture and IT'S GOT TO GO!

7. Paying commission creates a relationship with the owner and IMO that is a key to keeping your machines on location for a very long time.  Location eviction is a very serious problem for charity vendors and commission helps minimize it.

I neither hate charity nor love commission.  There are simply pros and cons to anything.  I personally believe that commission is more sustainable and cuts down on the number of locations needed.  However, I still have many charity machines on location.  As I said before, I use both depending on the location and situation.  I do support most of Bob Butler's original comments on this topic and would rather not do charity.  But a charity and commission mix is more appropriate for me.  The trick is to know which technique to use and that is based on experience plus trial and error.  Sorry for the longer post, but I like conversing on this topic since it helps make me think through and re-think my position on this.  I'll shut up for now!

Jax

 

[nepavend]

G,

Please don't take this the wrong way... you are out-thinking the room when you ask questions like that. 

I have one or two locations (hate to stereotype but they both happen to be fresh Italians off the boat, who moved here from NYC areas) who complain that the 30% commission is only the $10-20-30 or whatever.  For the most part, especially in this economy, owners appreciate getting anything they can, especially from dead space that didn't sell them any product.  Don't worry about the 1% that are just blankety-blanks and worry about the other 99%. 

The way I sell them on it (especially my top spots) is that a rack is something that has to be grown into, I don't want to put $1000 retail value worth of racks/sticker machines on a spot I know won't do the numbers to support it.  When a double location grosses $40-50 per service, I try to put a 4-way or rack depending and hope it goes to $100-150 per service, and go from there, and tell them it will increase sales, and hence their commission.

I only have a few racks because I just started getting them and getting access to them at the right price over the last 3 months.  Now that I have a few out, I am working on 2 more upgrades to racks in the next month or so.  I am also pulling singles/doubles that aren't performing and upgrading spots that are, not necessarily glamorous (single to a double, a second double here, a .50 toy head where .25 toys are getting killed, etc.)

Hope that helps you out G, hopefully that makes sense, and sorry again to be blunt with you up above. 

[nepavend]

Nice Jax, we match our thoughts perfectly, you got my POTD.  I hate to stereotype like I said in the other post, but that is how some people tend to be, but its never 100%.  I have Chinese people who arent up my you-know-what when I arrive and others that are more excitable.  I have Italians who dont care what I do and are nice as pie to me and others who gripe about 30% commission and who just are never happy.

Doing both commission and charity leaves you some flexibility for nearly all types of locations. 

[markvend]

Great thoughts in this thread! The only thing I would add about putting machines on credit cards is that terms are pretty fluid lately meaning that the terms are changing with the wind. BE CAREFUL and know what you're doing if you choose to go through with it. I have done it as I have alluded to in other posts but you've got to know what you're doing and have some cushion.

Mark

[guile]

My question is how do you approach/convince locations with say, a double or triple and entice them with a 25 or 30% commission? If you are grossing even $50 a month at a location, why would an owner care enough to have you put a machine there only to receive $15 or $20 a month? (and this is based on $50 gross which is unrealistic for most locations unless you have a rack)

This is sort of my dilemma with he charity/commission route. Personally, I think a lot of people would rather not bother. But if for charity, they might be more open. Btw, sorry to hijack the thread. Hopefully U2 will find this (important) info useful as well:)

g

The topic of charity vs. commission can span many pages.  Hopefully,  these replies are kept in the Vending 101 area.  Trying to Not repeat everything.  Here are my additional comments even though they are off topic for this thread.

1. Many Asian/Eastern cultures do not embrace charity.  Chinese, Arab or Indian owned businesses will most likely require a commission - especially if they are first generation immigrants.  You may have some better luck with 2nd generation (their kids)if they are raised and educated here.

2. "Donald Trump" type owners will never give anything for free.  Why should they give you free floor space?  After all, you are making money on their customers and employees.  They want a piece of the action - no matter how small.  There is NO FREE LUNCH in their minds!

3. Some owner's think the charity is a scam.  Some American, European and Hispanic owners (who are more supportive of charity) may be skeptical and reject the charity vending concept.

4. Other Vendors are paying commission.  Video, Crane, Rack, Pool Table and Jukebox vendors all pay a commission.  They expect candy vendors to do the same.

5. Commission vendors may bad mouth your charity.  Commission vendors really hate it when a charity machine get parked next to theirs.  They will usually inform the owner that the charity is a scam and only $1 per month is actually donated.

6. Charity locations are more volatile.  When the ownership changes, the charity machines are at a high risk of being evicted.  Think of a vending machine as a piece of furniture and think of the new owner as someone's wife.  The wife hates that piece of furniture and IT'S GOT TO GO!

7. Paying commission creates a relationship with the owner and IMO that is a key to keeping your machines on location for a very long time.  Location eviction is a very serious problem for charity vendors and commission helps minimize it.

I neither hate charity nor love commission.  There are simply pros and cons to anything.  I personally believe that commission is more sustainable and cuts down on the number of locations needed.  However, I still have many charity machines on location.  As I said before, I use both depending on the location and situation.  I do support most of Bob Butler's original comments on this topic and would rather not do charity.  But a charity and commission mix is more appropriate for me.  The trick is to know which technique to use and that is based on experience plus trial and error.  Sorry for the longer post, but I like conversing on this topic since it helps make me think through and re-think my position on this.  I'll shut up for now!

Jax

 

Thanks Jax. I know you have shared your thoughts on this subject (many times) and they are sound. I guess for me, there is an "inner conflict" going on. My goal is to create a strong and long lasting business which I'm building from the ground up. While most of your points make a lot of sense (and I wholeheartedly agree), it's still hard to fathom many business owners wanting to let you place a gumball machine (that might do $20 a month) on location for a %.

Again, I guess it comes down to evaluating. I have a Pizza parlor with a triple that does almost $50 a month. That is a VERY valuable location (it don't hurt that it's down the street from me either:). I wouldn't want to jeopardize that but all it takes is one person talking about the "charity" and/or another hungry vendor.

 

[guile]

G,

Please don't take this the wrong way... you are out-thinking the room when you ask questions like that. 

I have one or two locations (hate to stereotype but they both happen to be fresh Italians off the boat, who moved here from NYC areas) who complain that the 30% commission is only the $10-20-30 or whatever.  For the most part, especially in this economy, owners appreciate getting anything they can, especially from dead space that didn't sell them any product.  Don't worry about the 1% that are just blankety-blanks and worry about the other 99%. 

The way I sell them on it (especially my top spots) is that a rack is something that has to be grown into, I don't want to put $1000 retail value worth of racks/sticker machines on a spot I know won't do the numbers to support it.  When a double location grosses $40-50 per service, I try to put a 4-way or rack depending and hope it goes to $100-150 per service, and go from there, and tell them it will increase sales, and hence their commission.

I only have a few racks because I just started getting them and getting access to them at the right price over the last 3 months.  Now that I have a few out, I am working on 2 more upgrades to racks in the next month or so.  I am also pulling singles/doubles that aren't performing and upgrading spots that are, not necessarily glamorous (single to a double, a second double here, a .50 toy head where .25 toys are getting killed, etc.)

Hope that helps you out G, hopefully that makes sense, and sorry again to be blunt with you up above. 

Thanks for that Nepa. Question (please don't feel obligated to answer), out of 200+ machines you have out, approximately what % is charity?

[nepavend]

G,

Not a problem, I am down to about 5% or so that are charity, maybe less.  That is about 10-12 locations.  The most I had was about 35 locations that were charity when I started (24 Child Search spots) and my first addition was another 10 or so locations that were Ronald McDonald House. 

I have sent all my labels back from Child Search, so now I'm just doing Ronald McDonald House for those few locations.  A personal friend of mine is the Exec. Director for the House locally so I try to help out where I can for him.  I also do a seasonal placement (Labor Day to Halloween) for the Ronald House that raises a few extra bucks at a farmer's market that does corn mazes and hayrides for the kids, its a big fundraiser for the house here and I put in a 4-way and some .50 toys and they do pretty well for the short time they are there.

The bulk of the stops that were Child Search are either going to be pulled since they don't do well or just let them ride at 0% commission until someone squawks, then they can be pulled or left if it is worth it.

[U2Rocks]

Nepa,

You should join the fatwallet forum.

http://www.fatwallet.com/forums/

Great place to find deals in general, and talk about $$$.

Matt

 

[guile]

G,

Not a problem, I am down to about 5% or so that are charity, maybe less.  That is about 10-12 locations.  The most I had was about 35 locations that were charity when I started (24 Child Search spots) and my first addition was another 10 or so locations that were Ronald McDonald House. 

I have sent all my labels back from Child Search, so now I'm just doing Ronald McDonald House for those few locations.  A personal friend of mine is the Exec. Director for the House locally so I try to help out where I can for him.  I also do a seasonal placement (Labor Day to Halloween) for the Ronald House that raises a few extra bucks at a farmer's market that does corn mazes and hayrides for the kids, its a big fundraiser for the house here and I put in a 4-way and some .50 toys and they do pretty well for the short time they are there.

The bulk of the stops that were Child Search are either going to be pulled since they don't do well or just let them ride at 0% commission until someone squawks, then they can be pulled or left if it is worth it.

Thanks again Joe. You have pm.

[antoniocinisi]

another thing u can do is before the year at 0 percent runs out,open another account with 0 % and transfer thatbalance AND MOST IMNPORTANTLY CANCEL THE OLD CARD!!

this may not be a great idea if u have iffy credit,I am not sure though.

make the payments on time is most important as we all know.

[nepavend]

Antonio,

I think we should be careful when giving advice regarding someone's credit.  That is a purely individual case by case basis.  Some people won't be affected by canceling a card, others may break their chances at refinancing their mortgage or applying for a vending business loan in a interest rate environment we have right now which is advantageous for business owners and home buyers/owners.

Canceling cards can take away temptation, but they also lower outstanding available balances, which affects Debt-to-income ratio calculations, which can cause problems at a closing table.

There are also a myriad of other issues that I'm sure can be discussed on a new thread regarding credit, debt, and how it relates to building a vending business.

[antoniocinisi]

Antonio,

I think we should be careful when giving advice regarding someone's credit.  That is a purely individual case by case basis.  Some people won't be affected by canceling a card, others may break their chances at refinancing their mortgage or applying for a vending business loan in a interest rate environment we have right now which is advantageous for business owners and home buyers/owners.

Canceling cards can take away temptation, but they also lower outstanding available balances, which affects Debt-to-income ratio calculations, which can cause problems at a closing table.

There are also a myriad of other issues that I'm sure can be discussed on a new thread regarding credit, debt, and how it relates to building a vending business.

I was being careful,That is why I specified it may not work if you have iffy credit.I am not sure if canceling a 1000$$ credit card will actually decrease your chances at getting a mortage or another loan.I say 1k because as far as I remember thats what my cards started with.I am not sure if they just did that or if it`s standard.you are right it varies by individual.

takeing away outstanding available balances also at the same time takes away extra debt an individual can get into and not be able to pay none of it off.

more then anything credit companies want to see a secure stream of income,long credit history, with regular payments made on time,and maybe some assets.

 

 

[vendmaster1]

Cash is King!!! It's better to have things paid off from the beginning. Not to mention a whole lot less stressful!!

[kei-1]

The only thing I plan on financing in the future is a house.

[reel]

Jax,

Great post, the info contained applies here in Australia as well................your post is so spot on.