What % of gross should you pay for a route?

[royalforest]

What % of Gross should you pay for a route?

Thanks

Rich

[mission vending]

There are many ways to evaluate a route. Here is what I did on my recent route purchase. This transaction took me about 4 months to complete, but it was a fairly large route 150K+. The end result was 38 machines, all less than 5 years old, 2 OCS locations, machines approx 50% full with some additional inventory and the coin mech $$ for 65K.

If you are looking at something much smaller it should go much faster. If there are good records then one option it to look a previous 12 months, get the average, multiply by 6 for six months average cash flow. Number X

Look at the equipment and figure a ballpark value of the equipment if you were buying it used. Then add in what is costs you to secure a location (location fees etc.) Number Y. If there are any contracts involved then you might want to consider adding a bit more.

If there are some good accounts on the route then Number X will be your higher number, if the accounts are mostly dogs then the value of the equipment (Number Y) will be more than the value of the cash flow.

I would consider a fair starting point to be between the two numbers. Of course that is before you factor in many other variables.

Is product included? Any fallow equipment? Parts? Coin mech $$? Vehicles?

Is the seller highly motivated? Does seller need cash? Do you need owner financing?

Bottom line, I would start with either number X or Y,  and then look for ways to get increased value for the $$ or lower what I'm willing to offer.

[royalforest]

Thanks!

[Mikey B]

Maybe its due to all the meds I'm taking to get over Strep and pneumonia, but I have no clue as to what you were trying to explain. 

[mission vending]

The guy who mentored me when I was starting in the business showed me two ways that he used to place a value on a vending route. One is the value of the cash flow. Rule of thumb to use was to review 12 months records, get the monthly average, then multiply times 6.

The other is to figure the value of the equipment on location and add to that what it would cost you to set the location if you had just gotten it yourself.

This establishes a ballpark starting number range from which you can begin negotiating up or down depending on the many other variables in the mix.

Hope this helps to clarify, if not let me know.

[Mikey B]

Very much understand now!  Thanks for simplifying it for me.

[royalforest]

Mission

One is the value of the cash flow. Rule of thumb to use was to review 12 months records, get the monthly average, then multiply times 6.

I guess that means 50% to 60% of gross sales?

[mission vending]

Closer to 50%, but yes. That would be for equipment on location. Add in value of other assets (fallow equipment, vehicles etc.) and subtract any debt or lease obligations you have to take on or are included.

That ought to give you a fair price. From there you make adjustments on the "gut feeling " factor. If you are not sure about the veracity of any information or stability and longevity of locations then go down from there. Once you get to the point that thinking about the price does not make you stay awake at night and you would not be bothered losing an account or two then you are probably ready to pull the trigger.

In the case of the route that I recently bought  I wound up paying 42.7% of the previous 12 months sales.

[royalforest]

42.7% seems like a great deal. Does that include the machines, inventory and change in the coin mech? What would be a fair % of gross to pay on average, 50%?

[mission vending]

Yes that included product in machines about 50% full and some left over as well as coin mech money.

IMO 50% would be a good rule of thumb beginning point. After that you start taking into all the other factors.

[royalforest]

Sorry Mission but do you mean a starting point of 50%, and PAY HIGHER if there is inventory or coins in the coin mech? Or do you mean start with 50% INCLUDING the inventory and coins in the coin mech? Thanks again!!!

[mission vending]

Personally I started at 50% with inventory and mech money and wound up going down to due the impending loss of one location and no other assets to include in the deal.

The van was trashed and not worth anything, same with idle pieces of equipment, just old junk that I did not want so I offered him the choice of either a couple of grand for it or to separate it and he could sell it himself if he felt he could get better value for it. So we split it out and I got what I wanted, the locations and the equipment at the locations without having to mess around with the junk stuff.

I there were other assets included the price would have gone up instead. If he was not as motivated to sell then I might have had to up on the price a little as well.