Route Assessment

[putrevus]

Thanks again for all your input.

 

Looking to buy a route but before signing NDA to get actual numbers and machines details as these guys are in my area I do not want to sign NDA if it is not worth it,

 

They have over 300 machines out of which 150 are from bottlers.

 

Only 50 or 60 machines have credit card readers, biggest account for them is 6 machines doing roughly 35k, lost one account of 1000 plus employees.

 

Doing gross of 600k asking price 400K. Average per machine is working out 2000/year which is bad but question is since route has over 150 machines from bottlers, how do we calculate gross per machine.

 

I assume for machines from bottlers , they service them, does it include taking cash out and who gets money from credit card payments if these are equipped with Credit card readers .

 

Thanks a lot for your help.

 

[AZVendor]

There are a ton of variables in this one.  You need to first find out if the soda machines are on full service or if they are loaned or leased to the vendor.  Loaned or leased means you get all the profit minus your costs of leasing and you do all the work (best way).  Full service means you will only get a percentage of the sales from the bottler but you don't do any of the work (worst way, depending on your priorities).  

 

You need to find out what the last two years of P&Ls look like to know what their gross, costs, labor and net are.  You won't get those hard numbers until you're serious.  The 600k gross is totally dependent on pricing and units moved so it's a moving target.  Is the lost account included in these numbers?  The average sales per machine is low so there are an abnormal number of poorly perfoming machines.  However, if the soda machines are on full service then they are only including their commission on soda sales in their numbers.  

 

You definitely need more info such as price for cans, bottles, candy, other snack categories, commissions on sales, etc.  When you begin asking questions like these they will realize you're serious and you'll find out how serious they are. 

[putrevus]

He said he is willing to provide all the details once I sign NDA. That large account lost is not included in these figures.My thoughts were if they have three hundred plus machines but none of locations have more than 6 machines making this route full of stops with two or three machines.

I will try to get the pricing and details about soda machines from bottlers.

The real dilemma for me is should I go to micro market route for expanding the business or just stick to regular vending.

Do small operators stand any chance of succeeding in micro markets.

Thanks again for your help.

Sent from my iPhone using Tapatalk

[RJT]

Simple math $600,000 divided by 52 weeks= $11,538.00 per week divided by 300 machines = $38.46 a week average per machine. = Terrible averages 

 

Unless he has a ton of new and like new equipment and a ton of other assets he is throwing in I just can get their with his asking price. This is another case of a vendor making quite a bit of gross revenue and not really making all that much in net because he/she has so much work to do to make the $600k. I preach this all the time about the average needs to be around $100 per machine per week or you are doing a lot of work for little return and if you ever decide to sell out you are in the same situation as this person with the "numbers" being hard to make sense. 

 

It only takes a few machines with bad numbers to start dragging down your averages. 

 

Build your own company by getting the best locations and get the best averages of $100.00 or more and you will have something. Like most anything, no free lunches so it is going to take some work to get there. 

[Southeast Treats]

There is nothing wrong with signing a non-disclosure agreement if you are a serious buyer, you won't be cherry picking his accounts anyway if you are ethical.  Don't confuse an NDA with a non-compete agreement, which he should sign for the buyer when he sells. 

 

I agree that the averages are low but there may be a few gems in there.  The bottler machines are not an asset you should be paying for as the seller does not own them.  And there are issues such as inventory, cash in machines,etc. as with any purchase.  You also need to look at how many employees he is using right now to get the work done, or if it is a one-man show.  That many stops with only one person means a LOT of them are once a month if that, and NO time for finding better accounts to move equipment into... would you assume a lease on his current facility or move elsewhere, and what are the costs there... any vehicles involved?  You will need startup money as well to keep the business rolling when you first take over.  Get yourself into some SCORE business seminars in your area if running or buying a business is new to you; free or low cost seminars hosted by retired business executives.   

 

20% approx credit card readers, these are likely his good accounts, and his cc system should give you some solid numbers.  A machine needs to be doing 400-500 a month to justify a card reader in my opinion...

 

I don't think you can calculate gross per machine (not easily anyway) but overall gross and overall net profit and EBDITA (earnings before depreciation, interest, taxes, and amortization) are numbers to look for.  If he quotes his net (profit) as "owner benefit" be sure to ask how he arrived at that number.  Remember, your net may differ because you will likely operate differently.  Also, if you are financing any part of this, be prepared for debt service to consume a chunk of the net until paid off.  Be sure there is enough left to live off of, or you will be starving to pay the bank!

[RJT]

He said he is willing to provide all the details once I sign NDA. That large account lost is not included in these figures.My thoughts were if they have three hundred plus machines but none of locations have more than 6 machines making this route full of stops with two or three machines.

I will try to get the pricing and details about soda machines from bottlers.

The real dilemma for me is should I go to micro market route for expanding the business or just stick to regular vending.

Do small operators stand any chance of succeeding in micro markets.

Thanks again for your help.

Sent from my iPhone using Tapatalk

 

Yes, "small vendors" can stand a chance if done correctly. It also can be a disaster if not done correctly which is no different than regular vending. The key to any business is "getting it right" or have enough money to stand the longer learning curve or as some here like to say "getting your feet wet". I am not a fan of "getting your feet wet" when it could be done correctly from the start. Like all business you will have to adapt and make changes but you also have to have the knowledge and "smarts" to see when and where to make those changes as needed. 5 to 6 years ago I fought CC readers but now they are the norm and have proven themselves worthy in many accounts. 

 

On the bottler assets you need to ask if they are full service or third party machines. 

[AngryChris]

I wouldn't pay that much.  For that many bottler assets, there's the potential risk of losing your golpher if the bottler decides that you don't gross enough sales to keep those machines.  While that chance is small, it really lowers the overall value.  If these were 150~ non-leased machines for 400k, then he's asking for $2,667 per non-leased machine if you look at it that way.  At those prices, combined with the actual gross figures, I would say it's just not a good deal.  Making $2,000 per machine per year isn't bad around here (Southwestern Ohio) but it's not great either.  Accounts like those should generally be serviced at least once every other week, which means that you'd only be servicing 150 machines per week or 30 machines each day.  And let me tell you, 30 machines in a day is a lot.  You pretty much have to hire someone to run the route with you.

 

There's a chance that this guy just wants out because it's a massive amount of work for those types of accounts, and he almost certainly has to hire a driver to help.  You simply couldn't do repairs + stock machines + stock the truck + make orders + count money + book keeping all with one person.  Once you factor in a single employee, your profits drop rather quickly.  Assuming $11,500 per week in gross sales, while making 35% profit (which I think is pretty fair to guess), you're looking at $4,025 per week in gross profits.  Pay an employee $600/week, and you're left with $3425.  That may look like a lot of money, but those profits can fall quickly with other things.  Those credit card readers probably eat up more cost than they are worth at some accounts due to the low sales.

 

This is simply too many small accounts if you ask me.  I think the owner knows it and he's trying to get as much for it as he can before he splits after losing the big account.  I wouldn't want to be in debt for no more than 5 years, and that means that I wouldn't give more than $300,000 for that route due to the circumstances.

[putrevus]

There is nothing wrong with signing a non-disclosure agreement if you are a serious buyer, you won't be cherry picking his accounts anyway if you are ethical. Don't confuse an NDA with a non-compete agreement, which he should sign for the buyer when he sells.

I agree that the averages are low but there may be a few gems in there. The bottler machines are not an asset you should be paying for as the seller does not own them. And there are issues such as inventory, cash in machines,etc. as with any purchase. You also need to look at how many employees he is using right now to get the work done, or if it is a one-man show. That many stops with only one person means a LOT of them are once a month if that, and NO time for finding better accounts to move equipment into... would you assume a lease on his current facility or move elsewhere, and what are the costs there... any vehicles involved? You will need startup money as well to keep the business rolling when you first take over. Get yourself into some SCORE business seminars in your area if running or buying a business is new to you; free or low cost seminars hosted by retired business executives.

20% approx credit card readers, these are likely his good accounts, and his cc system should give you some solid numbers. A machine needs to be doing 400-500 a month to justify a card reader in my opinion...

I don't think you can calculate gross per machine (not easily anyway) but overall gross and overall net profit and EBDITA (earnings before depreciation, interest, taxes, and amortization) are numbers to look for. If he quotes his net (profit) as "owner benefit" be sure to ask how he arrived at that number. Remember, your net may differ because you will likely operate differently. Also, if you are financing any part of this, be prepared for debt service to consume a chunk of the net until paid off. Be sure there is enough left to live off of, or you will be starving to pay the bank!

Thank you, he never quoted his net profit, it was just a initial call, I am going over to their warehouse next week.

He has two full time drivers along with him and partner.

[Southeast Treats]

I think AngryChris is pretty close, depending on some of the other assets.  If there are 2 employees and 2 working partners it may be only the employees are making money right now!  Big accounts are hard to find and easy to lose, there are a lot of people shooting at them all the time, so don't get too hung up over the one he lost.... you are looking at 2 or 3 vehicles in the deal, and probably a good sized warehouse (insurance, utilities, rent).  You need to see for the last several years 3 main accounting reports: profit and loss; balance sheet; and reconciled cash flow.  Maybe even hire a good CPA to look at them with you... take the time to look hard and long at everything!