New & Looking To Buy First Route

[solarity]

Hi. My husband and I decided this would be a good way to start a small business.

We've been combing CraigsList lately. There is one I'm really interested in. He has 8 machines in 4 locations (1 drink, 1 snack in each). The machines are 3 AP, 1 USI, 3 Vendo, 1 Dixie Narco, age is unknown. Profit is claimed at $800-1000 per month. He is asking $8,000 for the route. I'm going with him next Friday as he restocks provided that he doesn't sell before then, evidently he's gotten a lot of response to the ad. The locations are spread out but all within 20 minutes of our home. I'm estimating 4 hours of service time per week including travel. Is this a reasonable price? We will have cash.

[g_r_vending]

The snack machines are a no brainer, as you can buy everything you need at Sams or Costco, but the drink machines would raise concerns. If he is selling 20oz soda from pepsi, At least in my area, you need to buy quite a bit of soda for pepsi to even deal with a small vendor and you would also need a comerical address for them to deliver the soda to, they wont deliver to your home. Just a quick FYI. The profits seem a little high, but it its worth a long look at what he has, also make sure you have someone close to you that can service these machines in case you have problems.

[solarity]

Ooooh good point! I just sent him an e-mail to find out more about what he sells in the drink machines.

If I meet up, I will ask him to verify profit. Even if it was less than that, it still sounds like its worth the time involved.

[solarity]

Ok they are all "can" machines. So I'm still hoping the route will be around next week. Still don't know if the price is good though... Since I"m new to this, I don't know how pricing is determined. But I'm trying to read as much as I can.

[solarity]

Ok here is another question... If I were to buy a route with cash, is there some kind of document that is signed or how does this work?? Do I have to set up a business first before the route can be transferred? I guess I'm just confused on how the transfer of ownership occurs.

[caserri]

Solarity,

Welcome to the forum, it's great to have you here. I have moved your thread to the full line discussion section.

As for your question about a document for purchasing a route, We have a whole area in the PLUS section where you can download tools to help you succeed. Included in the PLUS section are several examples of route purchase and sales agreements (PSA's).

Once you gain PLUS status, you are free to download and tailor them to your specific needs.

Steve

[solarity]

Haha so I need to get PLUS status before next Friday! Can I get there by asking lots of questions?

I'm currently trying to figure out my state (NC) requirements... It initially looks really complicated but I"m sure I'll get it. I'm guessing an LLC is the best way to go until we get bigger? then S-Corp is better?? I guess I have to figure out how to file sales tax and then there is federal.. My husband is pretty excited about this, he wants to go fill the machines. I think I'll be left with figuring out the details behind the business side of this and bookkeeping!!

[caserri]

You'll be a PLUS before you know it!

Check out our "Regulatory Affairs" section for more info on business structure as well. Our member alyssamma is well versed in those matters and is a great brain to pick if you want to search his posts.

Steve

[West Coast Vend LLC]

Welcome to the forums, Solarity.

It sounds like you guys are really interested in becoming vendors. It's a great business if you have the right accounts and equipment. We are here to help you in any way we can. Check out the topics and ask any questions you may have. We will try to direct you to the right answers.

Gary

[alyssamma]

Solarity, welcome

A few comments...

1) Profit on full line machines is normally 50% of gross. So, $800-1000 means the machines pull in $1600-$2000, or $400-$500/week, or $50-$60/machine/week. This is pretty good...not unbelievable, but a very good average for 8 machines.

2) Like Steve said there are purchase agreements in the member plus section. However, a few things you'll want to watch out for:

- Make sure the change makers in the machines are fully stocked. If not, this can be upwards for $40-50 of extra expense per machine.

- Make sure the inventory levels are kept at normal before the sale (i.e., he doesn't stop filling them because he knows you are buying)

- You should get his left over inventory

- Find out if he has to pay a commission for any of these locations (that can be 10+% of your gross).

- There are other things too, but these are some of the more important things.

3) With full line you'll need something large to transport product. When we had full line machines we made about $500/wk gross so you should have the same amount of product each week that we had. We used a minivan, and it was *completely* full - including the front seat. Make sure you have a big enough car.

4) You'll also want a storage room for your inventory.

5) Carrying cans is *hard* work. You will need a good sturdy cart - don't even try w/o one. And even then it is a lot of lifting. This is actually why we sold our route - my wife couldn't do the lifting anymore.

6) Machines break. And they'll break at the worst times. A bulk machine can sit broken for a few days and no one cares. A full line machine will upset people if left broken for >1 day. Make sure you are prepared to go to a location whenever they call.

7) How to verify income: Go with him to collect/restock. Make sure the coin changes are 100% full. return the next week and count the money with him. If possible, repeat the following week also.

Don't sweat the LLC/sales tax stuff yet. Once you get the route there will be plenty of time for that. Just make sure you track all expenses (and income) including mileage. Track income by city, esp. if you have to pay local taxes.

Once you get the route PM me and I can help you getting you business stuff set up.

Kevin

[alyssamma]

Also, not to change your mind or anything, but take a look at bulk too. This thread does a good job comparing full line to bulk. Also it references another thread that does the same:

http://www.vendiscuss.com/forums/view_topic.php?id=2879&forum_id=3

[solarity]

Wow thanks for so much detail!! I'll write everything people recommend in a notebook when I go, so I don't forget anything.

2) No commissions

3) We do have an SUV, though my husband will have to learn to drive it (its mine & stick). Also I will probably service one machine on my way home, so he would only service 3 machines at a time, one of which he says is every other week. Is an SUV enough space? He says he has a trailer for $1000 for sale separately. I'm hoping this isn't necessary. We have a 2 car garage that barely fits our vehicles and an HOA that probably wouldn't like anything unsightly. Though technically we can use the garage as storage and park the cars outside. Though I guess products can't be out there since no climate control.

4) I've been thinking about where I'll put all of this stuff. For now and maybe the next couple of years, I think we'll be ok in this regard. I think its worth the sacrifice .

5) I'll see if this person is selling a cart. I think seeing him do the route will be really beneficial when it comes to these types of details. I think we can mange the lifting, we could use the extra exercise, at least I can since I sit in a cube all day . The SUV is pretty old and runs great, but our next vehicle we are considering a mini-van so definitely a possibility.

6) I guess this is my main concern of anything.... I will ask who he uses to service. I know we can handle basic things easy enough, my dad is handy where we are not, but honestly we know nothing about this type of machinery. But I'm sort of thinking we can learn as we go.

Oh thank God! This stuff is making my head swim. I need to take my time figuring it out.

Oh and I originally was interested in bulk and still am a bit. My neighbor was the one who got me thinking about this, they had a route in NJ before they moved to NC using U-turns. So I started looking stuff up. Then I started looking on CraigsList and decided I really wouldn't mind something established initially. But I'm also interested in bulk. Especially if this doesn't work out.

Edit: alyssamamma - very cool avatar. Mace Windu is one of my husbands fav characters. We are huge SW fans.

alyssamma wrote:

Solarity, welcome

A few comments...

1) Profit on full line machines is normally 50% of gross. So, $800-1000 means the machines pull in $1600-$2000, or $400-$500/week, or $50-$60/machine/week. This is pretty good...not unbelievable, but a very good average for 8 machines.

2) Like Steve said there are purchase agreements in the member plus section. However, a few things you'll want to watch out for:

- Make sure the change makers in the machines are fully stocked. If not, this can be upwards for $40-50 of extra expense per machine.

- Make sure the inventory levels are kept at normal before the sale (i.e., he doesn't stop filling them because he knows you are buying)

- You should get his left over inventory

- Find out if he has to pay a commission for any of these locations (that can be 10+% of your gross).

- There are other things too, but these are some of the more important things.

3) With full line you'll need something large to transport product. When we had full line machines we made about $500/wk gross so you should have the same amount of product each week that we had. We used a minivan, and it was *completely* full - including the front seat. Make sure you have a big enough car.

4) You'll also want a storage room for your inventory.

5) Carrying cans is *hard* work. You will need a good sturdy cart - don't even try w/o one. And even then it is a lot of lifting. This is actually why we sold our route - my wife couldn't do the lifting anymore.

6) Machines break. And they'll break at the worst times. A bulk machine can sit broken for a few days and no one cares. A full line machine will upset people if left broken for >1 day. Make sure you are prepared to go to a location whenever they call.

7) How to verify income: Go with him to collect/restock. Make sure the coin changes are 100% full. return the next week and count the money with him. If possible, repeat the following week also.

Don't sweat the LLC/sales tax stuff yet. Once you get the route there will be plenty of time for that. Just make sure you track all expenses (and income) including mileage. Track income by city, esp. if you have to pay local taxes.

Once you get the route PM me and I can help you getting you business stuff set up.

Kevin

[suncoast]

I think you may be out on 4 hours. Shop/drive/refill may take more. The price is good, bottles are a pain and Gross profit is not as good an bottles. Plenty of time to change that after.

Get yourself a "folding hand cart" Lee valley Tools sell the German one .$100 400lb cap, weights 8 lb

Sams sell the cheaper one, Both work great and are easy on the back. I have used them for 5 years. 

[solarity]

Yah I think thats ok for the time involved, I think I was figuring the restocking and driving but not the loading so I'm sure that adds on quite a bit. My husbands company doesn't offer overtime anymore and he's looking for something to do in his free time, he has off Thur-Sat.

Thanks for the info on the folding cart, I'll get it written down.

suncoast wrote:

I think you may be out on 4 hours. Shop/drive/refill may take more. The price is good, bottles are a pain and Gross profit is not as good an bottles. Plenty of time to change that after.

Get yourself a "folding hand cart" Lee valley Tools sell the German one .$100 400lb cap, weights 8 lb

Sams sell the cheaper one, Both work great and are easy on the back. I have used them for 5 years. 

[coinvestor]

Complete disclosure: I was intrerested in the same route. I have decided not to prusue it for three reasons.

First, the farthest location is too far for me.

Secound, all the equipment is 10 plus years old. This is only really bad because of the distance thing for me and service calls would be expensive.

Third,the price is high. Unless I am mistaken the gross sales (not net) are $800-1000 a month. If you average $900 a month then it would take ~ 18 months to get your money back (assumes 50% cost of product). This is a long time considering that we have not figured in any repairs or transportation. Don't forget those sodas get very heavy after two years of moving them without pay. I think the price should be around $5000.

One thing I do not know about this route is what the guy has his prices set at. This could make a big difference in the ROI.

I agree with suncoast, I have been using a folding aluminum handtruck that I got at ofiice depot four years ago. I promised myself I would get a bigger handtruck when this one breaks, but it just won't.

As far as business requirements go, I would not do anything other than come up with a temporary name and have some business cards printed (please don't use the do it yourself ones) so you have something to hand the contacts at the locations something. The rest can be done after you buy the route. I have a NC LLC, but I wish I had setup a Corp, and I will probably convert if I get much bigger which is a pain. Remember either option will cost you a $200 a year filing fee (I call it my small business fine:) When you buy the route, you need to buy only business assets, not the business. The reciept of bill of sale should list all equipment and not say "X vending company and assets".

There is very little demand for used equipment right now as employers layoff and close locations which creates excess equipment. On the flip side, the additional people lokking for work or businesses are driving up prices for established services that produce cash. Remember this also means that competetion for your locations is tougher. I have no doubt that this guy will get close to what he is asking, or at least sell (in my eyes) for a premium.

I'm not saying that this is not the right thing to do, just know that you would be paying a premium at these levels. For me I will choose not to buy now and just market more.

 

Best of Luck,

JD

[solarity]

I was wondering if someone on here would be in the area . Its a small world or well our area is getting pretty big! Yah I figured the equipment is pretty old if he was unsure of the age. Thanks for all the info, especially on the LLC or S-Corp. Is S-Corp worth doing if income is not huge? I guess it wouldn't matter, I just thought an S-Corp would cost more to set up. Do you have any info on sales tax in this state? And also are permits required? I took a small tax class recently and learned about all the advantages of an S-Corp over an LLC but it was my first exposure to this info and I've forgotten a lot of it, maybe I can make sense of my notes.

So is the goal to get back the investment within 1 year or less? Is that a good way to determine price?

coinvestor wrote:

Complete disclosure: I was intrerested in the same route. I have decided not to prusue it for three reasons.

First, the farthest location is too far for me.

Secound, all the equipment is 10 plus years old. This is only really bad because of the distance thing for me and service calls would be expensive.

Third,the price is high. Unless I am mistaken the gross sales (not net) are $800-1000 a month. If you average $900 a month then it would take ~ 18 months to get your money back (assumes 50% cost of product). This is a long time considering that we have not figured in any repairs or transportation. Don't forget those sodas get very heavy after two years of moving them without pay. I think the price should be around $5000.

One thing I do not know about this route is what the guy has his prices set at. This could make a big difference in the ROI.

I agree with suncoast, I have been using a folding aluminum handtruck that I got at ofiice depot four years ago. I promised myself I would get a bigger handtruck when this one breaks, but it just won't.

As far as business requirements go, I would not do anything other than come up with a temporary name and have some business cards printed (please don't use the do it yourself ones) so you have something to hand the contacts at the locations something. The rest can be done after you buy the route. I have a NC LLC, but I wish I had setup a Corp, and I will probably convert if I get much bigger which is a pain. Remember either option will cost you a $200 a year filing fee (I call it my small business fine:) When you buy the route, you need to buy only business assets, not the business. The reciept of bill of sale should list all equipment and not say "X vending company and assets".

There is very little demand for used equipment right now as employers layoff and close locations which creates excess equipment. On the flip side, the additional people lokking for work or businesses are driving up prices for established services that produce cash. Remember this also means that competetion for your locations is tougher. I have no doubt that this guy will get close to what he is asking, or at least sell (in my eyes) for a premium.

I'm not saying that this is not the right thing to do, just know that you would be paying a premium at these levels. For me I will choose not to buy now and just market more.

 

Best of Luck,

JD

[alyssamma]

Solarity, there are all sorts of ways to price routes...that Q is a good way to start an argument around here

I will say a couple of things...

1) If the #'s are gross then the route is too high. It is really only worth $4500-$6K depending on exactly what it makes.

2) No need to do an S-corp. Just do a single person LLC. Again, you don't need to worry about this now.

3) Older equipment = breaks more + harder to find parts. For example, lots of newer equipment have coin mechs and bill changers that are (clost to) universal. Meaning a spare from one can go into another. The older ones don't work this way and fixing these can take longer.

Kevin

[coinvestor]

I was wondering if someone on here would be in the area . Its a small world or well our area is getting pretty big! Yah I figured the equipment is pretty old if he was unsure of the age. Thanks for all the info, especially on the LLC or S-Corp. Is S-Corp worth doing if income is not huge? I guess it wouldn't matter, I just thought an S-Corp would cost more to set up. Do you have any info on sales tax in this state? And also are permits required? I took a small tax class recently and learned about all the advantages of an S-Corp over an LLC but it was my first exposure to this info and I've forgotten a lot of it, maybe I can make sense of my notes.

So is the goal to get back the investment within 1 year or less? Is that a good way to determine price?

 

As far as the one year or less, there are lots of variables and plenty of post here on that.

The cost to set up a S-corp or an LLC will be about the same. The only real difference in NC is tax treatment. LLC's are flow through entity, so all business income is taxed as personal income. An S-Corp is its own tax entity so you will do a seperate return at the end of the year.

Permits will be different depending on your city and county. I have a general business license ($25) from my city. You can file with the state for a sales tax ID that will allow you to buy with out paying tax, and collect (pay) sales tax to the state. Most items (there is a list) that are sold through vending machines is only taxable at half the normal rates. For me (since it varies by county) our combined state and local sales tax is 6.75% so I have to pay 3.375%.

Again, if you are buy established locations, I would not worry about any of this yet. This is stuff you would want to figure out in the first few months.

I am not saying don't buy this route. If you have lots of cash and know that this is what you want to do then this could be a good way to get into the business and get a feel for it. This is a decsicion that you have to make. My reasons for not buying don't necessarily apply to you, like distance. I just wanted you to know that the price is at a premium no matter how you value the route.

JD

[alyssamma]

JD, S-Corps are passthru entities also. You report profits for S-Corps on your 1040 (although you do have to file an 1120S, but no taxes are paid with that).

There is very little difference between an S-Corp and LLC. In fact, you can choose to have LLCs taxed as S-Corps, although there is little reason to do this.

The main differences between an LLC and an S-Corp come into play when you have multiple (non-spousal) owners. With an LLC you have much more flexibility in how profits are distributed. S-Corp distributions are tightly coupled to ownership.

There are also differences in stock and who can own them - only people can own S-corps (although an S-Corp can 100% own another S-Corp), but anyone (including non-citizens) can own an LLC.

All things considered an LLC is best for vending.

I personally own an S-Corp, but that is because my main business is consulting. In that case it is good for me to have a corporation as I deal with so many other corportations. This is merely an "image" thing and has nothing to do with taxes, etc.

Kevin

[solarity]

Also with an S-Corp you can set up a 401k, not sure you can with LLC? Then you can self-direct the 401k to invest in real estate which is an interest of mine. This sort of bypasses taxes until you withdraw the money, or vice versa with a roth.

I'm definitely still considering this route but want to go with him during restocking to see and learn more about it, also to see the machines, etc.

[alyssamma]

Solarity, you don't want to deal with a 401(k)...the paperwork is a nightmare.

For an S-Corp you'll want to use a SEP-IRA. This is one of the best IRAs available. An LLC can also do this but depending on how you are taxed it is a little more complicated.

For self-directed, were you maybe thinking Roth-IRA? If so, then you are correct. This is an excellent way to invest in real estate. However, please note:

- This is independent of your business entity. i.e., anyone can set this up.

- Finding someone to allow you to self-direct it might be a little difficult unless you have a large balance.

- Also, for real estate, you need to have a large balance as everything must be paid from the IRA. Since you can only contribute $5K/yr, this could be difficult unless you rolled over a normal IRA.

Kevin

[solarity]

Yah I think if I ever wanted to get really serious about the real estate side of things I would probably at that point get an accountant. Maybe I will just do an LLC for now if its easier to deal with.

I was actually thinking with the self-directed 401k that its a way to defer taxes until a later date. Also maximum for 401k is a lot higher than a roth like 14k or so and then company match doesn't count against the 14k with a possible 100% match, 28k tax deffered, is that correct? Haha I'm not looking to make that much with this but its an interesting idea. But yah your right a Roth is something I could do now anyway but has the advantage of not being taxed later. Well most of this is way down the road for me but its still a very interesting topic, even its mostly theoretical until I get a bigger business.

[solarity]

Well that chance is over with, the route is sold. Thats to bad.

[alyssamma]

A Roth is better for real estate as it is tax free and not tax deferred. With real estate, the gains you get are (hopefully) immense and getting that tax free is great.

Also, anyone can do a Roth...401(k) are (usually) done via your employer and are very complicated (and expensive) to administer.

But yes, you can put more into a 401(k) than a Roth. I don't know the 401(k) limits as i haven't used them in about 7yrs

But for your S-Corp or LLC, I would look at a SEP-IRA.

Kevin

[coinvestor]

Well that chance is over with, the route is sold. Thats to bad.

The guy said he got the 8k he was asking for the route. Maybe its time for me to sell out:)

 

JD