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Harupit

Help me value the business

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I am in talks with a seller. Following are details:

Total of 125 machines. Many locations in Schools. Revenue has been declining since last 2-3 years (probably mainly due to economic situation of city - heavily oil dependent economy). The revenue may start to increase this year with increase in oil prices. But not expecting to grow a lot.

Revenue of about USD 560K last year and 650K 3 years back. 

About 25 machines manufactured between 1990-1999

About 45 machines manufactured between 2000-2009

About 35 machines manufactured between 2010 and 2015.

Not sure about rest of machines.

COGS in the range of 40%

Commissions in range of 12-13%

Net profits are in range of about 25K last year to 90K 3 years back.

Paid workers to load the machine may cost me around 30K each for four workers plus myself so total of five workers.

Please let me know if this information is sufficient to put an approx value on the business? If not, feel free to ask any further questions. I highly appreciate the community's help in understanding the worth of this business. 

For now, do not consider any vehicles being purchased as part of this business. But cost of operating vehicles need to be included. 

 

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I calclulate a gross profit of 142K based on last year's sales.  To get a net profit of 25K there must be massive equipment payments, vehicle purchases or repairs, sales taxes (income tax doesn't count), rent, etc. that you are leaving out.  As you spelled it out I wouldn't value it above 200k and that's just a high valuation of the machines, nothing else (you made no mention of cages around the machines, also assets).  Even at 200k it will take 8 years of profit to pay it off.  

The major flaw I see here is in how many people it takes to service 105 machines.  Unless a majority of them are slammed every day by students requiring daily fills or the machines are spread out too far, I don't see why 3 people can't handle this if managed correctly.  And your salary doesn't count.  You get paid from net profit.

As to the concept of schools, are they already stocked with school-dictated healthy snacks and drinks?  if not then that is soon coming and you will have a HUGE learning curve.

The plus to this, if bought right, is that you get instant cash flow.  There are two ways to get into vending and this is one of them.  Done correctly you can set yourself up pretty good to expand away from schools which is more profitable with no down time like schools have.  

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Honestly, if managed correctly, it should be a 1 man route.

500K a year is only 10000 a week, or 2000 a day, which is 250 an hour.

If it takes a guy more than 1 hr to service 1 machine you have big issues.

Either the route man is dilly dallying, locations are way to far apart, or the machines are being serviced way too often.

With proper equipment and route planning you should be able to pull at least 250 out of a machine every time you open it.

 

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10,000/week is definitely possible but that's with high end locations.  6,000/week is more realistic for one person if you ask me.

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By my math, his current machine average is $ 86 per week.  The schools throw that math off somewhat because they are seasonal.  You didn't say how many locations those machines are spread between, or how big a territory he covers; but I agree that a 4 man staff is too big.   Also, does he own all his drink machines, or are they bottler loaners?  And does he have any card readers or telemetry?  How is he currently managing the business, on paper or with an online VMS?  Does he operate any machines other than snacks or drinks (cold food, coffee, ice cream)?    There could be a lot of room for improvement that would boost your bottom line, but the current value is based on today, not some possible tomorrow....

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Thank you very much guys for your help and guidance. I am pretty new to this business. 

@AZVendor - The school regulations are in place towards healthier foods. The current owner is operating as per the regulations.

@Orsad - Route is large covering my city and a couple of nearby cities as well. Farthest place is about 70Kms away.

@Southeast Treats - 57 locations for about 125 machines. About 55 machines have telemetry and about 17 machines have card readers. Part of business is managed by VMS and part on paper as per my understanding. 

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51 minutes ago, Harupit said:

Thank you very much guys for your help and guidance. I am pretty new to this business. 

@AZVendor - The school regulations are in place towards healthier foods. The current owner is operating as per the regulations.

@Orsad - Route is large covering my city and a couple of nearby cities as well. Farthest place is about 70Kms away.

@Southeast Treats - 57 locations for about 125 machines. About 55 machines have telemetry and about 17 machines have card readers. Part of business is managed by VMS and part on paper as per my understanding. 

I see.

The key to being profitable with this route is efficiency.

This means using the telemetry effectively. Only send guys out to the further locations when necessary, when the machines have 60-70% of the items sold.

If there is one machine that reaches the 60% sold mark significantly before the others consider adding machines or buying larger ones, so that all of the machines in a particular city needs servicing at around the same time.

This way you can send a guy out to the other cities say once a week, and have him hit all those locations. Cuts down on windshield time significantly. This is the one thing that will eat you alive in costs, because it wastes labor and fuel, two of your biggest expenses.

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I think you are going to be in the $250,000 range.  There are too many employees for this route.  You need to cut but before doing that (if you purchase)  wait until you see who is the best.  Be prepared to change locks. Good luck whatever you do.

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Use the ridiculously low net to your advantage while negotiating.

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Thank you very much guys for sharing your views.

@ords - It would be a great help if you could give some pointers in terms of leveraging low net in negotiations. This might seem to be ridiculous question but I am new to this so any help and pointers would be helpful.

 

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I'm no master negotiator, but you can say things to the effect of how it's going to take x years to make your money back (calculate x based on the price and net income)

Others can probably chime in, always open to new negotiation tactics.

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