Long time lurker, first time poster. Question about value of route.

[rinzearl]

Hey Gang,  Ive been reading the forums here for a while, trying to research if this line of work is right for me.  Anyways, here is my question:

I have the opportunity to buy a small business from a neighbor.  The package includes:

2 locations, 2 machines each.  One location is a white collar office complex, the other is a municipal rec center.   

Each location has 1 snack and 1 beverage machine.  The machines are all less than 2 years old - USI Alpine VT5000, USI Summit 500, USI Mercato 4000, and a Vendo v7-21.  All machines have AirVend installed.  

The municipal rec center location has indicated that they would like to expand the service to include other locations, which I think adds some good value to the deal.  

The seller opened their books to me and allowed me to see sales reports on their AirVend account.  The 4 machines did $22,000 gross sales over the past year, and the seller showed me his own books that supported his claim that after tax, insurance (the rec center requires machines to be insured), COGS and AirVend fees that he put about $8500 in his pocket.  So about 38% net.  

Asking price for the whole package is about 26K.  That gives me about a 3 year frame to recoup my investment (if I do not expand or grow the business).  That beats the heck out of any mutual fund or money market account, and for taking a day each week to clean and fill the machines, that seems like a good deal to me.  

26K seems like a lot to lay out, especially after seeing a few other "starter" routes of similar scale go for <10K, but those routes have old machines in so-so locations, with no AirVend to help out.  

So? Anyone have any strong opinions on this deal?  To spendy? About right?  High, but maybe worth it?

 

Thanks in advance to any thoughts that any of you care to share.  

[AZVendor]

The machines are newer and with new technology in them so that increases the value, or rather, it will uphold some of the asking price.  I will say that his price is a bit steep and I would never pay more than one year of gross sales or 2 years of true net.  What you don't say is what the vend category prices are, what the commissions paid are or what contracts exist.  How long has he had this and who did he buy it from?  He probably overpaid for it to begin with.  I wouldn't buy it if there are no contracts because if you lose either or both locations without the bit of protection a contract affords you won't be prepared to find new locations for them.  Keep in mind that contracts are only as good as your willingness to pursue enforcement.  This is a high risk, much like a mutual fund, so don't fool yourself. 

If more locations materialize then are you prepared to drop $5-10 grand on each one?  You won't have any guarantee of future performance (again, like a mutual fund) and you would definitely need contracts on each to ensure you have the locations long enough to pay for the machines.

[Chkoolaid1]

I would not pay that price. I would come in somewhere between 12-16k. 3 years is a long time to run that route just to break even. Especially with no guarantee you'll keep those locations. I switch over locations pretty frequently, and I know it will happen to me. You just don't know when you'll lose a location.

Another good question to ask is how many machines can you get with 26k? I find it hard to stay stationary in this business. If I don't add a new location for a while I start to get itchy. Like Az said if you expand do you have the capital to do so? You'll have more capital the less you pay him.

Another must ask question is why is he selling? They're solid machines and the tax records are proof of income but it's still an important question to ask. As always price and value are not equal, the value of this deal is different for everyone. Good luck! You're on the right track!


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[rinzearl]

6 hours ago, AZVendor said:

...what the commissions paid are or what contracts exist.  How long has he had this and who did he buy it from?  

If more locations materialize then are you prepared to drop $5-10 grand on each one?  You won't have any guarantee of future performance (again, like a mutual fund) and you would definitely need contracts on each to ensure you have the locations long enough to pay for the machines.

Thanks for the responses guys.  I think you raise great points.   On the issue of existing contracts, I will be learning about those today.  I know one of the locations is "free" and the other takes 15% of net sales.  The reason they are getting out of the business is they are old and have trouble lifting cases of soda.  

I do suspect they overpaid to begin with and that is affecting their asking price.  

[rinzearl]

I just learned that the "contract" is 45 days notice from either party to cancel.

[Poplady1]

Just be prepared to lose the locations.  That is the worst that can happen and you have 45 days to relocate them.  I worry about the income reported as bringing in on average $105 a week per machine which puts these machines into a very high end income range.  Be sure to verify that amount by doing a couple of ride alongs...good luck.