would you have done this?

[sbishop]

I have been vending for 1 year now. Snack, Soda, and 4 cold food satilites(not using). I have been looking to expand and I wanted to hire a route person. I work full time managing an apartment complex. Sometimes it is hard to service my route regularly.

So, I found a guy that owned 140 vendstar 3ks, who was moving out of town. He has been working his route for 3 yrs. He was selling off his route in groups of 35 machines. I wanted all of them, but was unable to com up with the money until after he had sold 35.

So, I bought 105 machines and got all of his extra parts and supplies.

He sold me machines for $250 each. He financed the deal with $2,250 down and payments of $300 per month. the loan is at 6% for 10yrs

Now, before I bought the route, He showed me his records for the past 3 years and I when with him to service his route. We collected over $1,200, from 97 locations. That is an average of over $12 per location. I was satified and we inked the deal.

So, here is my plan. I have contracted a guy to run the route. He is one of my part time maintance guys at the apartments. the plan is for him to work 25 vendstars and all of my full line locations every week. This way my full line is getting the attention it needs and the money from the bulk will pay the $50 per week I am paying the route guy.

So, with the full line being maintiained weekly and finding locations for the extra machines, I feel that revenues will increase. This will allow me to expand my business and not be tied down to the free time I have before and after work.

So, What do you think? Did I do good? Since he was financing the deal, I looked more at the positive cashflow and it looked good to me. On a side note, this guy loves Rob at kickstart Location, He ever bought me 4 locations from him to replace the ones we picked up. I have already gotten 3 of them.

[lurtsman]

Let me preface this by saying I'm sorry for coming off as a jerk.

250$ for a vendstar is paying at the very least 3 times what they are worth, and much more likely 5 to 8 times. Even with the locations, if you had any kind of back door out of this deal it would be a golden opportunity. I'm all for expanding routes, but 12$/location on a triple head is a bad location, and anyone willing to service all your full line and 25 vendstars for 50$ is either mentally handicapped or planning to steal from you. I don't think your projected cashflow will ever materialize. Again, I'm sorry for sounding like a jerk, that's not the intent, but I'd rather be clear and honest than kind and misleading.

The factors you have working against you:

1. Vastly overpaying for crappy machines

2. Terrible locations

3. A massively underpaid employee

However, if you are still in the market, I have some seaga's without coin mechs I'd be happy to sell for only 100$ a piece. I'll even throw in a location from kickstart if you'll buy both of them.

[sbishop]

lurtsman,

Ok I understand where you are comming from.

If I bought 100 machines for $50 each and bought 100 locations for $52 each. That would have cost over $10k that I did not have.

So to recap your points

1. Vastly overpaying for crappy machines

     -I bought an existing route generating cashflow that I was able to step into through financing. $1,200 cashflow cost me $300 per month plus expences  When I want to expand I plan to use all those great deals that Nam post to find some cheap machines.

2. Terrible locations

     - Once he found Kickstart Locations he started buying locations and they were better quality that he others he had.The bulk route has not been maintained as in new locations for the lower producing ones for a few months as this guy tried to sell it. I am not buying machines from this guy I am buying the cashflow.

The cashflow does work. I have seen the income and the reported income from the route. I am grooming the route(replacing crap locations with new ones). This wil increase the cashflow, without having to buy more machines.

3. A massively underpaid employee

     -Let me clarify that I am paying my route guy $50 per day, one day per week. I estimate he will work for 6hrs and the comes out to a little over $8 per hr. That is what he makes working here at the complex. The owner cut his hours in half. This will help him make up some hours. I will have strict inventory control and the vend reports from the machines. He knows that I will be spot checking the bulk machines to see if he is being honest. He does not count the money. He collects it and puts it in bags for each machine. I count the money after he runs the route. I am starting to service the route for the first time. I took a vacation day yesterday and went with the route guy and we did 32 locations and most of the full line.

Here are my locations

I have 100 bulk locations -every month

Full Line locations

2- every week

2- every 2-3 weeks

2- every 3-4 weeks

[Rustinm]

If you dont mind me asking what did you pay total for all of your vendstars? I own 115 vendstars and ive only paid 4k for all 115 machines. Now obviously the thing that makes the difference is that you have all of your located and im paying midwest locators to place mine. I have over 30 located but have a long way to go. If my calculations are close then total to have all 115 machines bought and located is somewhere around 11K with candy costs and gas. I think that 250$ for located vendstars is completly crazy, i have seen located vendstars go for as little as 25$ per machine!

[Rustinm]

Hey is that 6% per month? Per year? Or total?

[lurtsman]

Your route is well built for him to service it so quickly, it sounded like 50$/week included more than a few hours labor.

I get that your purchasing cash flow. I'm a big fan of cash flow, and vending is profitable enough that cash flow can remain positive even on over priced machines by spreading out the financing over a decade. You said the loan is for 10 years, that you're paying for that cashflow. During that time you are likely to have at least a few of the machines stolen if you aren't taking preventative measures. The vendstar is easy to pick up and run away with, losing a 250$ investment that isn't paid off for hurts in a large way.

2. With a ten year repayment period, while you may generate cash flow now, your loan will outlive the asset. Vendstars do not last ten years, they won't last close to that. You'll need to get replacement parts--preferably by buying some vendstars for 20-50$ and dismantling them for parts to keep the other machines working. Parts you have too many spares of can be sold on Ebay to offset the cost of purchasing machines for parts.

So what I'm hearing is you expect to collect 1200/month from these triples. 30% will go to CoGs, leaving 800$ a month for other expenses. 300$ goes to the previous owner. You have 500$ left. You'll pay your employee about 200$. You take home 300$ a month. Now, you may say that your employee would receive part of that pay anyway, but the percent is unclear. At 50$ to service 25 locations, he is making 2$ a location. You said it is about 8$/hour. That means he is servicing 4 triples in an hour. If he can keep that rate up all the time, I will be impressed.

Unless I miss my guess, these machines are charity, if they are NCCS and only have one sticker, then you'll still be paying almost 100$ a month. So 203$ to your pocket.

Out of that 203$/month, you'll be paying for relocates on kick outs and poor performers. If we assume a 20% relocation per year on charity machines (IMO fairly reasonable. If my average charity location lasted 5 years I'd be thrilled) So 20 locations get replaced, kickstart charges you 52$ per. Lets say you get a discount off his sale price, and you get them for 47$. That's 960$. While some might be covered under warranty, assuming that is as optimistic as expecting all your locations to be provided for 5$ under sale price, and it is without accounting for the month that the machine goes without a location. In my opinion, losing only 960$/year to this would be controlling your costs since the time off location hurts significantly. That averages to 80$ a month. Your cashflow is down to 123$/month, assuming no machines are stolen. If you have enough 1 machine stolen per year (and yours may be higher because these machines are light weight and easy to steal), and the valuation of the machine is 250$, that would be a loss of almost two full months income. If you pay for insurance on your route, liability or theft, that's another monthly cost. So the question becomes, can you keep your machines working for a decade, owning plastic machines that are infamous for their low quality, manage your costs of acquiring new candy (is your employee doing that while servicing 4 locations an hour?), and handle the taxes (additional cost if you pay someone else to do them), while the minor cashflow will likely be covered by the depreciation claimed on the inflated price of the machines. Your time is also still involved, as you'll be verifying the counts from several machines.

Meanwhile, you take on the risk that if it doesn't work out--for whatever reason, and there's plenty of them that cause business to fail-- you are still locked into a 300$ a month payment with machines that can't be sold for anywhere near 250$ a month, unless you do an excellent job as a salesman.

Again, I don't mean to insult. I love the way you analyze for cashflow and get creative with having an employee just over minimum wage who you can keep honest to make the cashflow closer to passive. That part is beautiful. I'm just not convinced that it's feasible at the predicted costs. I'd love an extra 123$ a month, but it's banking on making a vendstar work for a decade. The real king of cashflow here is the guy who is receiving 300$ a month for 10 years without doing anything.

I don't mean to sound like a golpher, just putting my pessimistic view out there to try to give you a second opinion.

[lurtsman]

Hey is that 6% per month? Per year? Or total?

I'm sure he is saying 6% per year. That is a fairly standard interest rate.

[JPVendCo.]

the way I see it, if the cashflow is good, dont worry about it. I agree that you paid too much, but if you are comfortable with it, let it ride. most of the time you can pick up vendstars under 100, some under 50. you are talking 30k to make $1260 a month. your "break-even" point is 24 months. plus I am guessing that the $12 is GROSS income, so take out expenses as well.....

I have said Many times, "I am willing to pay your price if you agree to my terms"©

I may have not does this deal in particular due to the unit price being way out of whack, but I like and agree with the way that you think. looking at the big picture as a whole.

-jp

[alyssamma]

Well, I won't get into the Vendstars are crappy machines debate - I have them and love them

However, I've paid between $16 and $25 for them. Even paying a lot for locating that comes out to less than $100/machine. Even paying $50 for the machines you can locate them for $100 total (machine + location).

Also, $300/mo @6% for 10 years is $50K! With the $2250 you put down that is approx $52K for $1300/mo gross (I upped your $1200 since all machines weren't serviced).

Even if all of that $ was profit, it would take you over 3yrs to break even. With a 25% COGS (very, very optimistic once you figure in gas, charity, kickouts, etc.) it will take you 4.5yrs to break even.

Realistically since you are paying someone and will have other costs you are looking at 6+ yrs to break even.

Lastly, $12/location for a triple is horrible. $21 is the average, although with the economy I've been averaging about $17.

Like lurtsman said, not trying to sound like a jerk. However, if there is anyway you can get out of this please do!

Kevin

[nam]

Guys,

What's done is done. I'm sure if he'd been here in the forum sooner he would have either have passed or made a better deal. Now the deal is done and he just needs to make the best of it. There are alot of people here in the forum that have bought the wrong machines, over paid for machines, bought business opportunities and they're learning from their mistakes and moving on. I bought way too many candy machines. Wish I hadn't done that especially this morning. Coatings falling off Reesces Pieces, PM&Ms vending like 8 at a time, quarters sticking in the chutes, but I'm just gonna have to learn and move on. This Vendstar deal wasn't the best but it isn't a total bomb. He can move on and make his payments on the finacing. I'd try to take advantage of the situation as much as possible. You've got alot of locations that you probably can place more equipment in without paying a locator. I'd be trying to take advantage of those locations to place sticker/tattoo machines, toy/capsule, bounce ball machines, etc.. Some of those locations must be good enough to support other machines. Just try to make the best of it and move on is my opinion.

nam

[lurtsman]

On the upside, welcome to bulk vending. If you're able to take advantage of some of Nam's deals and upgrade locations with children to sell some Toys, you may have a better RoI.

I understand if my lack of experience makes it hard to hear coming from me, but Kevin and Nam are both successful businessmen.

At 25$, I think vendstars are great as a tool for receiving RoI, and may get a few myself. I'm expecting the machine to break down within a few years though.

Edit: To be clear, I really do hope you'll stay on our forums. My goal was not to insult you, or scare you away from our forums. Only to bring a little more light to the forecasting.

[Rustinm]

I think the question now is what can we do to help out our new member? What i do know is that if you keep expanding your business you could still end up making a nice profit. Save the little money that you will make off of that deal and use it to expand with machines and locations that will make you excellent returns! vendstars can be very profitable and if you have a lot of them already then you may want to keep buying them so you always have parts on hand. Just dont pay over 50$ per machine for them! Deals come up on craigslist all the time for cheap vendstars. Pick them up for next to nothing and locate them yourself, if you dont spend more than 75$ to fill them up and buy them and you locate yourself you can turn a big profit very fast.

[Beer980]

Welcome to the route world. You may have been Biz-oped second hand but now you just have to make it work for you.

[sbishop]

First of all Thank you all for the input the positive and negitave. That is why I posted I wanted to see everyones opions and maybe get an idea or too.

Just so know know a year ago I bought 18 soda,snack and cold food machine and a 97 van for $7 grand. Most of the machines were on location an making money. So I know how to look for deals. I had the $7k to spend.

I have read alot about people getting into vending and loosing intrest and everything falls apart. I did not want that to be me. I have walked into a location and seen my machines empty no sodas or a few chips left in the machines. I saw that I was headed in that direction. It was do or die for me.

This was my plan to take my business to the next level. I bought a route guy! or the means to pay for a route guy. That is not all the revenue, you are not taking into account the revenue from the full line locations. I now have someone who can give my locations the serivce they need. I can now expand without worring if they are open on Sat or after 5pm so I can service them. I belive that the locations I have will produce more as they are properly cared for.

The key to my plan is expansion. I plan to continue to improve the cashflow by replacing the crappy locations and buying more equipment as I find more Ful line locations. there is a guy here with 10 soda machines he is asking $250 each I am looking for locations and I will be buying these one at a time as i secure locations.

I also plan to maximize the use of the route guy. I will be adjusting the frequency of service as to get more money per trip. I have bulk locations that do less than $10 per month I will put them on a 2 month schedule.

So in a nutshell, here is the plan

1- Stop treating my business as a side hobby and tring to work it on the side. Set up proper inventory controls and bookkeeping and other tracking report to better manage my BUSINESS.

2- improve service to the full line locations(and add a bulk machine) to increase sells and customer satifaction.

3- improve the bulk locations, replacing bad locations and setting service cycles to make them more profitable.

4- Train and support my route guy. Make sure he has the skills and tools needed work towards increase days and pay, and bonuses.

5- Expand,Expand,Expand! Set aside funds for those great deals Nam finds for us.

and last but not least Pray, Pray and Pray.  LOL

 

[sbishop]

Nam I just read your post.

What you are talking about in part of my plan. add bulk to my full line locations and add full line to my bulk location.

I guess the key for me was I am now set up to expand with out it being tied to my free time.

Their comes a time in every business when you can chose to stay where you are or expand. I could not expand without it being big enough to have someone service the route. I could handle what I had but to be able to expand I needed a route guy and this deal made that possible. Only time will tell if I made the right decision or not. I think that this will work in my situation.

and Nam I will be needing some good deals in about 2 months after I have everything up and running. I will be expanding!!!

[alyssamma]

SBI, it seems like you have a good attitude about this and are going about it the right way. I was wondering if there was a way for you to get out of this deal, but if not then like Nam said what is done is done and you should look to make the best of it.

A few questions/comments...

1) Is it possible for you to pay off the loan early? I went back and read your post closer and I think my earlier numbers were high. Still, you'll pay about $10K in interest over the life of the loan (approx. $30K loan, 6%, 10yrs, $2250 down payment). Doing this would save $.

2) Do you own a home? If so, can you tap home equity? This would make it tax deductable.

3) Unless your worker is someone you really, really, trust, set up some way to make sure he isn't skimming. Do spot checks of your locations before he services, for example. So, go to location A the day before he gets there. This way you'll know if he is honest.

4) Remember mileage is your friend. This is a great way to pull $ from your company tax free.

5) If you are planning to grow this as a full time business, then form an S-Corp.

6) Make sure you pay your FICA taxes for your employee. This is probably the #1 area where new business owners make mistakes. Also, it is one of the few ways the IRS will come after *you* instead of your business.

Kevin

[BudLeiser]

He over payed, but by how much? You can't just throw 105 vendstars at a locator and get them placed tomorrow. What kind of price can we put on the *time* it would take to wait for 105 locations. Accountants/economists use the term "opportunity cost" you might be turning a profit doing X, but how much would you have made if you were doing Y instead. Instead of waiting for locators, his machines are already on location generating profits.

It seems if he maximizes location and product, upping his averages. He should come out fine.

Aside: I too am worried about his underpaid employee, especially if your asking him to drive his own vehicle for $8hr. In this situation I would actually expect skimming, like a bar owner expects his bartenders to skim on slow nights. The goal is to keep the skimming as low as little as possible.

Idea: Hire 2 route-men and have them swap each others locations every so often. Limits their knowledge of recent pulls, and could show differences in data.

[alyssamma]

Bud, in general what you say is correct. However, I don't think that is the case here.

The problem is the 105 Vendstars. True, if he just bought 105 Vendstars then what you say above would be correct.

However, let's use Lurtsman's #'s from above and be a little generous. Say the OP is making $200/mo from this. Assuming a 30% COGS and the avg. $21/triple, then 15 machines would generate this same net income.

15 used machines @ $50/machine + 15 locations @ $50/location = $1500.

So, the OP could have spent $1500 and made the same net. The issue is the OP is spending approx. $30K to make that same $.

All of that being said, I agree with Nam that what's done is done. The OP needs to make the best of the situation and any specific advice we can give him to maximize his profits would be best.

Kevin

[havending]

I have been doing this for over 14 years and never borrowed one dime. 12 adv. is not even worth parking the car and getting out. You put alot of thought into the deal so your heart was in the right place GET OUT OF THE DEAL if you can. If now make the best of it and re locate the loosers.

[lurtsman]

Agreed. If the deal can not be backed out of for any reason, then our next step is just to help SBI make the most of it. At 12$/month average, with your costs of having someone else service it eating part of the profits, you have added incentive to put it on a two month cycle--or (preferably) get it relocated to somewhere that doesn't stink. Triples that do not bring in 8$ should get a quick call for relocation. Your payback period will be painfully slow, but it will be much faster if you spend the little extra to get good locations. Some people can locate well, I'm not one of them. (Nam can) I'll pay a professional locator to get me into the locations. I'll save money by using Nam's deals to get cheaper machines and fixing up old ones.

[BudLeiser]

Bud, in general what you say is correct. However, I don't think that is the case here.

The problem is the 105 Vendstars. True, if he just bought 105 Vendstars then what you say above would be correct.

However, let's use Lurtsman's #'s from above and be a little generous. Say the OP is making $200/mo from this. Assuming a 30% COGS and the avg. $21/triple, then 15 machines would generate this same net income.

15 used machines @ $50/machine + 15 locations @ $50/location = $1500.

So, the OP could have spent $1500 and made the same net. The issue is the OP is spending approx. $30K to make that same $.

All of that being said, I agree with Nam that what's done is done. The OP needs to make the best of the situation and any specific advice we can give him to maximize his profits would be best.

Kevin

*smiles* I wasn't trying to actually counter everyone, I think we agree the cost was too high. In hindsight I was actually trying to derail the topic into a discussion of located vs locating value.

Thank you for your formulated breakdown. However it leaves out T (Time). How much time will be lost locating, times the average amount earned. If a machine averages just $5 a week, But then the locator averages only 3 machines per week, it will take 5 weeks to fully place.

15 located x 5 weeks x $5 = $375

15 Locating

1st week= 3 Located x 5 weeks remaining x $5 = $75

2nd week: 3L x 4 weeks remaining x $5 =$60

3rd week: 3Lx3Wx$5=$45

4th Week: 3Lx2Wx$5=$30

Last Week 3Lx1Wx$5=$15

Total:$225

So in this scenario the located machines generated $150 more. But wait... we're comparing a relatively fixed variable (Located) with a very volatile variable (Locating). You really have no idea how long it could take to locate those machines. I would also expect a higher kickout rate with new locations then exisiting. And completely unknown and un-maxxed returns. It's also not an established route, you don't know how long it will take to service, and how much gas.

So everyone keeps telling him he over payed, but how much? How much is the known information and instant startup really worth?

[sbishop]

BudLeiser,

I think you understand the best. I Know that I paid too much. Yes I know.

I paid or will be paying for instant cashflow, ablility to hire a route guy, and most importantly the financing.

top 50 locations average $16

top 30 average $22

the note is for $24k at 6% per yr $300 per month pay ments

yes I can pay it off early.

[lurtsman]

Time is certainly a factor. The immediate gains of location vs the increase in monthly revenue of finding better locations.

[alyssamma]

Bud, I saw you posting something similiar in another thread...see my reply there

SBI, I'm confused. $24K at 6% for 10yrs is $266.45/mo, not $300...where did you get $300 from?

Also, see my other Q earlier about home equity, forming an S-Corp, etc. The latter you'll want to do ASAP so you can take advantage of business tax breaks.

Kevin

[sbishop]

Ok I reread the note here are the details

105 vendstar 3000's

price $26250.00

Downpayment $2250.00

Note ammount $24000.00

intrest rate 8.456$

length of note 10yrs

payments $297.00

Total of all payments 35640.00

I am forming an LLC There is a company van that the route guy will use.

No house I live in the apartment complex that I manage