Machine Route Advice

[huynhhh]

Hello All, 

Looking into purchasing a full-line route - used to be in bulk - full-line will be new waters for me. Please give me feedback on this route.

Locations: 10
Machines: 16
Revenues: Verified 120K (gross) over the last 2 years, claimed 1st year was slow, the second year was better (80,000 to date, this year). verified through an excel document of the electronic monitoring company - requesting tax returns
Profit: Claims a 60% Gross Net Profit Margin (Less COGS and Taxes) - does not include wages/gas, etc.
Commission: 2/10 Locations of 10-15% Gross 
Machine Make:  Healthy Max Combination Vending Machines
Asking Price: $95,000

=========================================================

Any feedback? I believe asking price is too high, but I believe I can talk them down. How are the machines? I looked on the forum it seems as if they are from a biz-op. A few of the locations have contracts, some do not.

[AngryChris]

All of the numbers look great... they really do... but that all sounds way too good to be true.  Like... wayyy too good to be true.  In fact, it all sounds like one of those scams where a random company claims that they have a route for sale and they just give you stock numbers.  If they all have telemetry (aka "electronic monitoring") then you need to find out what kind of readers are in them.  If they are USA Technologies, then you should be able to get actual copies of the reports and not something put on a spreadsheet.  The seller should be able to log in and show you the reports.  My gut tells me that someone bought into a healthy vending bizop and now they want to sell out and get their money back.  Paying $95,000 for a route that grosses $80,000 is insane if you ask me.  For that money, you could go buy your own machines brand new and get good accounts without getting scammed.  Even if it's totally legit, it's a bit high if you ask me... but I don't believe it's legit and I don't believe those numbers are verified.  Definitely see the tax return.  If the seller claimed the money on his/her taxes, then it may be legitimate.  If they claimed far less or nothing at all, I recommend walking away.

[CapitalCityVendingLLC]

Yea, I could give you an excel document saying my business did 1 billion last year in revenue.  Anyone can type something into excel.  If he has USA Tech, or something similar, ask him to pull up his machines online, in front of you.  If he can't for some reason, red flag.  And as AngryChris said, those numbers are solid.  The machines are healthy machines, but do you have to keep only healthy products in the machine.  If he is truly doing those numbers with only healthy snacks then wow.  I highly doubt it though.  

[huynhhh]

1 hour ago, AngryChris said:

All of the numbers look great... they really do... but that all sounds way too good to be true.  Like... wayyy too good to be true.  In fact, it all sounds like one of those scams where a random company claims that they have a route for sale and they just give you stock numbers.  If they all have telemetry (aka "electronic monitoring") then you need to find out what kind of readers are in them.  If they are USA Technologies, then you should be able to get actual copies of the reports and not something put on a spreadsheet.  The seller should be able to log in and show you the reports.  My gut tells me that someone bought into a healthy vending bizop and now they want to sell out and get their money back.  Paying $95,000 for a route that grosses $80,000 is insane if you ask me.  For that money, you could go buy your own machines brand new and get good accounts without getting scammed.  Even if it's totally legit, it's a bit high if you ask me... but I don't believe it's legit and I don't believe those numbers are verified.  Definitely see the tax return.  If the seller claimed the money on his/her taxes, then it may be legitimate.  If they claimed far less or nothing at all, I recommend walking away.

If they are able to provide a tax return of the previous 2 years - would that be "verification" of sales? 

They have 1 year contracts with hotels (2) which are about 80% of the whole route's revenues.

 

[huynhhh]

50 minutes ago, CapitalCityVendingLLC said:

Yea, I could give you an excel document saying my business did 1 billion last year in revenue.  Anyone can type something into excel.  If he has USA Tech, or something similar, ask him to pull up his machines online, in front of you.  If he can't for some reason, red flag.  And as AngryChris said, those numbers are solid.  The machines are healthy machines, but do you have to keep only healthy products in the machine.  If he is truly doing those numbers with only healthy snacks then wow.  I highly doubt it though.  

I believe they are vending anything they like - at the request of the corporations they are placed in, ie: gyms: protein shakes/energy drinks, etc.

 

Do you know much about the quality of machines??

[AngryChris]

That would actually explain a lot. And yes, if they provided a copy of the return as it relates to the business, it would a pretty good verification IF all of the numbers matched up.

[AngryChris]

This also tells me that the non-hotel accounts are bad.

[huynhhh]

1 minute ago, AngryChris said:

This also tells me that the non-hotel accounts are bad.

They are - but apparently, the sellers are retiring and are moving out of the province. I am dealing with a broker.

[huynhhh]

2 minutes ago, AngryChris said:

This also tells me that the non-hotel accounts are bad.

Monthly sales for the remaining accounts (6) sum up to a claimed $1500 gross.

[AngryChris]

Are these ALL combos? Even at the hotel?  The hotel would need to be serviced 1-3 times each week.  How often do they claim to service them?

[huynhhh]

4 minutes ago, AngryChris said:

Are these ALL combos? Even at the hotel?  The hotel would need to be serviced 1-3 times each week.  How often do they claim to service them?

They claim to require servicing 2 times a week. 

[huynhhh]

3 minutes ago, AngryChris said:

Are these ALL combos? Even at the hotel?  The hotel would need to be serviced 1-3 times each week.  How often do they claim to service them?

Yes - all combo's so beverage and snacks

[huynhhh]

5 minutes ago, AngryChris said:

Are these ALL combos? Even at the hotel?  The hotel would need to be serviced 1-3 times each week.  How often do they claim to service them?

Included in the route apparently is electronic tracking of sales/product - so if it is what they say it is - I can come on site with the required product.

[AngryChris]

That should mean that there is telemetry and it requires a wireless signal that you must pay for.

[huynhhh]

13 minutes ago, AngryChris said:

That should mean that there is telemetry and it requires a wireless signal that you must pay for.

I'm sorry - can you elaborate? I am lost.

[AngryChris]

The tracking you refer to.. there's no way to know exactly what the machine needs before you show up AND have these verified reports unless the machines are able to communicate. This requires some sort of signal whether it be a physicsl ethernet connection or a wireless connection. For that, you need something that can communicate, which is a telemeter. Telemeters are the modem parts of card readers.  So, unless they are all connected to wifi or ethernet and use the customers internet or tge customers internet in some way, then you need to pay for the service. The exception is a product that uses bluetooth.  You need to find out how the machine "knows" what has sold. What is communicating?

[Southeast Treats]

I would be wary of such a low cost of goods sold, most operators are in the 50% area at best, and note that the top accounts are also getting top commissions.  Twice a week service on the busy accounts will wear you out; should be switched to full size machines if possible. 

[huynhhh]

23 minutes ago, Southeast Treats said:

I would be wary of such a low cost of goods sold, most operators are in the 50% area at best, and note that the top accounts are also getting top commissions.  Twice a week service on the busy accounts will wear you out; should be switched to full size machines if possible. 

They explained to me that the size of the combo is specific the space that they have available(hotel) 

Have never done full line so I am unsure of the real work. But luckily it is located downtown where I work. 

[AngryChris]

This sounds less and less legit.

[huynhhh]

28 minutes ago, AngryChris said:

This sounds less and less legit.

Thanks, I truly appreciate it. The agent who is facilitating the transaction has called me back, I put a 70K offer in- contingent on the release of tax returns.

 

Anything else I should ask for ? 

[AngryChris]

Sign a non disclosure and ask for a ride along to see the machines in person. See the prices. Check product dates.

[huynhhh]

2 hours ago, AngryChris said:

Sign a non disclosure and ask for a ride along to see the machines in person. See the prices. Check product dates.

UPDATE: They claim to have a year end of September (end of months) so will not have a full financial for this year. I have requested to see commission cheques and expense reports as well as the live data of their history of sales.

Also a ride along is underway- 

 

What else should I ask for to verify? 

 

Also they countered with 85K from my 70K offer

[CapitalCityVendingLLC]

I would stand hard on your offer.  As the buyer of a route, you have the upper hand imo.  Make them come down to your number.  I doubt there's many people jumping to buy this thing.  If the guy hired a broker, he wants to sell this thing.  Also the ride along is huge.  Take pictures if they'll allow it, look at prices of everything, etc.

[huynhhh]

3 hours ago, CapitalCityVendingLLC said:

I would stand hard on your offer.  As the buyer of a route, you have the upper hand imo.  Make them come down to your number.  I doubt there's many people jumping to buy this thing.  If the guy hired a broker, he wants to sell this thing.  Also the ride along is huge.  Take pictures if they'll allow it, look at prices of everything, etc.

We did a soft-agreement at 80K.

I am meeting up with them and a business associate Monday, I will try to re-negotiate price then.

They are open to showing all financial statements from previous year (route is about 2 years old, the most recent year, which the one they claim to be the best, 80K Gross has not been submitted to the government as of yet)

I am going to be looking at past commissions paid to the hotels, as it is a % of gross sales, to some-what verify sales.

I am also going to be looking at their expense reports - the $$ they spend on the product should be a good representation of what the sales may really be.

The key point is that they will be showing the live- platform of how they track their sales, which is electronically - is there a way to alter it internally for audits? I am afraid that they will tweak numbers prior to meeting up. Is this possible?

 

This will be a big investment for me - so any advice on exactly what to look out for is strongly encouraged.

[AngryChris]

1 hour ago, huynhhh said:

We did a soft-agreement at 80K.

I am meeting up with them and a business associate Monday, I will try to re-negotiate price then.

They are open to showing all financial statements from previous year (route is about 2 years old, the most recent year, which the one they claim to be the best, 80K Gross has not been submitted to the government as of yet)

I am going to be looking at past commissions paid to the hotels, as it is a % of gross sales, to some-what verify sales.

I am also going to be looking at their expense reports - the $$ they spend on the product should be a good representation of what the sales may really be.

The key point is that they will be showing the live- platform of how they track their sales, which is electronically - is there a way to alter it internally for audits? I am afraid that they will tweak numbers prior to meeting up. Is this possible?

 

This will be a big investment for me - so any advice on exactly what to look out for is strongly encouraged.

Yes, there are ways to fudge the numbers to make it seem like the route does more than it does, but here are a few things that concern me:

The year end supposedly ends in September "for them."  This may simply mean that it's operating under a corporation and not an LLC.  That also makes me believe that a larger company owns that route, and not necessarily some guy.  Even so, most vending companies who sell out do so directly.  Locally, I have never heard of a company selling out through a broker.  It was always done face-to-face.  If it's being sold through a broker, then it sounds likely that the "route" is operated by a driver (who gets paid hourly, most likely) but is owned by a franchise, such as the healthy franchise.  Even if this is not true, and the owner is an actual person, it seems awfully suspicious that a broker is giving the information.  The whole thing sounds like a biz opp venture.  If it is a biz opp, then you are just getting stock numbers (ie. 60% net profit after COGS and taxes, 80k YTD, etc..).   Also, if it has done 80k YTD, then is that 80k from January - date or 80k from September - date?  That's a major difference in sales figures!!!  Again, the numbers appear to be presented to mislead someone.

Going by past commissions is an excellent way to verify sales to the hotel because almost no one would pay MORE commission than necessary.

Seeing as the route did "worse" last year.. before the hotel was acquired, then I would simply assume that the first year did no more than 40k without the hotel... which sounds like it did about 40k from 10 machines or so or 4k per machine.  While 4k per machine isn't bad at all, that's a lot to put on a single combo machine.  The red flag here is this: having a combo machine means very limited selections.  Unless this is entirely a healthy niche in which every machine only sells "healthy" items, then you are dealing with machines which likely sell a few varieties of soda and maybe 20 selections of chips, candy, and pastries.  In the end, you simply cannot maintain happy customers unless you service these machines once every week or perhaps once every other week.  The machines would start to look very bare after 2 weeks.  Even if they were stocked regularly, it would be very easy for another vendor to come in and offer a full size snack and soda with more capacity and better variety at the same locations.  I just don't see how someone could keep locations that average 4k/year out of single combo machines UNLESS it was strictly a "healthy" niche and these are located at places such as YMCAs and schools.  Even so, you would now be dealing with having to buy a bunch of healthy items...   And here is the catch to the "healthy" biz opps -- they want you to purchase the healthy items from them directly.  You may actually be able to make 60% after COGS and taxes, but that's because the prices are marked up so high and the products are from relatively unknown brands.  I'm not saying it cannot be profitable, but healthy niches are known to not be where you want to start.  On the other hand, the operator could be handling these accounts out of combo machines and I could be completely wrong.

The ride a long will tell you a lot.  Firstly, you'll see the prices.  Secondly, you'll see the dates on the products and see if it looks like they move fast (if any of them have short shelf lives).  The most CRUCIAL thing you will see, however, is how many people work or how much traffic is at these locations.  If you start seeing things such as an office with 20 employees or the healthy machine is located next to a full size soda and snack machine or anything that would have you wondering if it's actually a good location.. that would be a red flag.  It's very important to take notes of the accounts and how many people work there.  For example, if there is, say, an office with 20 employees with a single healthy vending machine located in the break room, then you should write that down.  When you have time to ask later, ask about the locations and say "Hey, you know the [account name] account?  How much do they gross each year?"  If you hear something like "about 4k" or anything like that, it's almost guaranteed to be a lie.  Simply report your findings back here and we can tell you whether the numbers add up.  A 20 person office with JUNK FOOD is likely to do anywhere from $15/week to $45/week, which is about $800-$2350/year.

You also want to ask about what the technology is that tells you what products to bring.  Aside from Payrange, which uses bluetooth, almost all other card reader technologies out there use either a wireless cell signal.  I have heard that wifi can be used but I have never seen it.  As I stated before, this technology requires a cell signal and you PAY for that service.  Many of us have card readers and we pay for the cell signal and it's a useful thing to have, but you don't have to have the card reader for the telemetry, you just need the telemeter.  The card reader connects to the telemeter and allows for credit card transactions, but the telemeter communicates as long as it has a cell signal.  The other possibility is that they are referring to DEX technology, which is a very common technology you can use in almost all modern vending machines.  The catch is that, without some form of communication, you have to get that DEX data directly from the machine.  So, if you don't have a way of communicating with the machine remotely, then you need to get the information on-site.  There's no point in driving all the way to the site to get the DEX data, only to have to drive back to tell yourself what to bring with you, is there?  If that's the case, you might as well just bring a whole truck and predict what you need.  Some operators use historical DEX information to predict their future sales, but this isn't going to be very accurate.  For example, an account might sell about 1 case of diet coke every week, and the DEX information would reflect that, but the account might actually only need 18 diet cokes or 28 diet cokes when you show up.  A telemeter can tell you EXACTLY how many items sold between the last fill and the time you took the report.  So you filled the machine at 12:28pm on August 1st, 2017, and you took the report on August 14th, 2017 at 7am, then it will tell you how much sold between that period, which may be exactly 23 diet cokes.  If that's the case, you can show up the next day and stock 23 diet cokes.  When you get there, it might be 2 diet cokes short of being completely up-to-par because 2 sold between the time of the report and the time you showed up, but that will be accounted for when you run the NEXT report starting at 7am on August 14th and ending on whatever date and time you take your next report, as it will include the 2 diet cokes that were sold after the report was taken but before you go there.  It just takes some discipline and understanding of basic accounting, as well as understanding how to pull the reports.

If they cannot provide you with information on their "eletronic monitoring" technology, then it's likely that they are making it all up and simply giving you fake reports so that you'll buy.  The technology is real, but the question is whether they are giving you real numbers or not.

Again, I need to bring this up... for the amount of money you are talking about, and for the value of each machine when you break it down ($80,000 divided by 16 machines is $5,000 per machine).  A BRAND NEW Royal Merlin IV 650, or a BRAND NEW USI 3500, or a BRAND NEW USI 5-wide snack machine should all sell for LESS than about an average of $4,000/EACH.  For $80,000, you should be able to EASILY purchase about 20 BRAND NEW full-size soda and snack machines.  Let me put this into perspective -- a Royal 650 can hold about 650 cans or something like 288 bottles.  A USI 3500 can hold about 500 cans or about 240 bottles.  A USI 5-wide can hold roughly 500~ snacks.  If the average price on an item in the snack machine was $1.00, and the average price on bottles from a Royal 650 was $1.50.  If you only sold HALF of everything in both machines, you would collect $216 from the soda machine (144 * $1.50) and about $250 from the snack machine before they were even half-way sold out.  That means, for an account doing $4,000/year or about $80/week.. or about $40/week in each machine.. it would take you about 5 weeks before you even sold HALF of the items.  Think about that.. Yet a combo machine might hold half of the capacity of snacks and maybe 1/3 the capacity of drinks that their full-size counterparts can.  Not only that, but when you have combo machines, you are losing sales because you don't have everything they want or the popular items sell out too fast.  I'm really trying to drive home that if you have that kind of money to spend, you should either look for a seasoned vending company looking to sell out or just buy your own refurbished machines and start out slow and use your purchasing potential to keep getting GOOD accounts early on.  All it would take is less than $20,000 and you could afford everything that a GOOD account wants, like a new glassfront soda machine, a new cold food machine, and maybe an additional stack vendor located somewhere else in a nice big break room in a hot factory with 150 people in it.  In a location like that, you could see numbers as high as $750/week in sales or almost $40,000/year in annual gross sales... all for $20k.  But I wouldn't recommend doing that either because you haven't gotten your feet wet yet.  For the money, you could start off with nice refurbished machines and get some good locations like factories with 50~ employees in it and make good money there without all of the risk.  There's nothing wrong with going big but $80,000 is a lot of money to risk for a venture that rubs me the wrong way.