A fair asking price for our route.

[jetskijr]

I recently learned my employer might be relocating me.  We have a route consisting of 21 soda machines two of them juice mates and 22 snack machines one a mechanical.  My wife operates the route and she works one nine hour day a week and the next week the same nine hour day plus one six hour day, so every other week is a little more than a day and half of work.  In the winter months we average about $600/wk gross now in the spring we are seeing about $900/wk and when we purchased last summer we were averaging $1200/wk.  A few of these locations are serviced every other week.

    The purchase would include the route with all machines with inventory plus about 15 more that need a home, 1994 GMC box truck with commercial grade freezer or cooler that uses ice packs for storing chocolates, commercial grade coin counter and an electric hand truck for moving machines.  We need to know what is a fair asking price, we don't want to be low balled but don't expect a financial windfall either.  Thanks in advance for your input.  I am out of town right now so if any replies require more specifics i will do it when i get home.

Thanks 

[mission vending]

Based on the numbers you have provided it looks like your route is grossing around 42-45K a year. Is there a reason for the decline in sales, closed/lost locations?

A very quick response from me would be 20-23K for the equipment on location, add in the rest I'd say around 40-45K. Depending on the brands of equipment and condition of all the stuff you might be able to add several thousand to that.

Just a quick ball park guess.

[jetskijr]

The drop in sales to us has to do with the demand for cold drinks in the winter as well as all the office holiday parties we're thinking.  As i mentioned some locations are every other week, and our blue collar locations really pick up in the summertime.  We have lost two locations but replaced them and pulled out of most of our mechanical machine locations except for one.  We will continue to find locations for the route though to make it more attractive.  Thanks for the reply.

[jetskijr]

Anyone else care to chime in?

[s.weir]

Mission has alot more experience then a good portion of the forums ha ha, take his opinion for what it is worth, which is alot lol. 

[Beergut]

I'm a newbie, so keep that in mind when reading my opinion.

It sounds to me like you aren't selling a route, you are selling a business, and a profitable one at that.  A good rule of thumb when you sell a business is take the revenue for a year, multiply it by 3, and then that is your selling price. The reason for this is that you can't assume a business will still be operating three years later.

In your case, it is a little different, because of the extra machines and equipment you are selling. I'd price the GMC truck using Kelly Blue Book to get a fair price, try to find a good price online (check ebay or craiglist for similar models) for the electric hand truck and the coin counter.

It sounds to me like the revenue from your machines would be ~40k a year, subtracting out what you pay in 'salary' for serving the machines 48 hrs a month. 40k x 3 = 120,000.

Take the price of the GMC truck, the electric hand truck, the coin counter, the 15 machines, and add in 120,000, and you have the total price for your business.

[WillisNYC]

I am in the process of trying to buy routes here in NJ, let me walk you through how I value a potential deal.  I start with the provable annual gross.  By provable I mean, documented machine readings going back at least a year.  If you only have your own recorded collection numbers, then the value placed on the route goes down.   SO lets assume that you have machine readings going back a year (VERY FEW people have this BTW.)  Lets also assume that you average $900/week in gross collections for the year.  That gives you an annual gross of $46,800.  Ideally I want to buy at 37% of gross or 75% of net.  In your case that would be $17,316.   I will only go up from there if you are willing to 'hold paper' or self finance part of the price of the route.  I also need some kind of guarantee that the revenue will actually hit the numbers that you claim it will hit.  If the numbers are off more than 5% then I want to take the same percent off the price  that you missed the guarantee by.  

If the seller allows me to accompany him on the route before the sale in order to verify the collections and has signed agreements placing all his equipment, then I might go as high as 50% of gross.  If the seller is willing to 'throw in' additional equipment like your truck and extra equipment, I try to value that separately from the value of the route.  I always bear in mind that I am buying a stream of income for the route itself.  That income has value.  Extra equipment has value, but only if I get it placed which takes extra time and effort on my part.   So extra equipment has some value, but I want it to be as heavily discounted as the equipment that I normally buy.   I normally buy snack and soda machines for $500-$750 per piece and would not pay any more than that for unplaced equipment in a deal like yours.    Other vendors buy lots of used equipment in bulk and get their machine costs even lower than mine so bear that in mind when valuing equipment you have in the warehouse or garage!

Now keep in mind that New Jersey may be a far different market than out west where you are, but the principals are the same.  I am giving you the buyers perspective and it comes as a disappointment to many sellers that I deal with.  I look at MANY deals here in NJ, but pass on almost all of them, because the value the sellers place on their EQUIPMENT is way too high.  AS I have explained time and again, 'It makes no difference to me what you paid for your equipment, I am only buying a stream of income and the value of your machines is governed by the income, not their cost!'    

So bottom line is that I am willing to pay 50% of gross IF all my conditions above are met AND the locations are close to my current route.  Any deviation brings my price down closer to the 37% that I initially discussed.    Extra equipment is valued separately and if I can get it cheaper elsewhere, then I don't want it as part of the deal.  (Unplaced equipment provides no income.)     If the owner is willing to hold paper, then that also gets me more inclined to pay 50% of the gross for the route.   (and holding paper means at least 50% of the sale is paid out from the route income over 2 years or more).   My conditions may sound harsh, but that is what keeps me in business and making money rather than going out of business.  I let other, newer operators pay top dollar for vending routes that I won't touch because they don't meet my criterion above.   So don't lose hope, if you have time,  you may find a newbie willing to pay closer to your asking price, but you won't find someone like myself.

[whaletail116]

Wow, from $120,000+ to $17,316.  Quite a leap.

[Beergut]

Willis,

Have you found many people willing to meet your conditions for sale? I think the only people willing to sell to you would have to be incredibly desperate, because you're asking them to take a sucker's deal.

If I'm understanding this correctly, you're asking someone to tell you their business for 37% of their gross, unless they agree to finance your purchase, which is the same as agreeing to give you a loan. Why the hell would anyone agree to such a deal, where you're basically giving them nothing for their equipment or the fact that they're giving you an already set route?

It would be a better deal for someone to hire someone else to run the routes and service the machines than to sell a business to you.

[WillisNYC]

Beergut,

You have to remember that buying a business is a negotiation.  Starting at 37% of gross gives me the ability to increase my price to the 50% that I am willing to pay IF my criterion is met.  I find that if the seller has confidence in his numbers, he is more willing to self finance.  If he is not confident , then he won't self finance and you know his numbers are suspect. 

To your other point about valuing equipment.  If equipment is placed on location and not bringing in much income, what is its value?  Not much.  I am not in the business of buying equipment and then reseling it on ebay or trying to relocate it.  If I am buying a route, I am buying income, not equipment.  This is why equipment not currently placed should be valued separately at a price that you would be able to sell it on ebay or buy it yourself.    I am not in that business so I don't really want a lot of unplaced equipment.  I find locations, then go get equipment to put on those locations.  I don't have a warehouse and don't want to have one full of equipment waiting for new 'homes'.    I have met many vendors who have plenty of equipment sitting around in a warehouse.  Unless that equipment is actively being placed, it has little value.

Lastly, no I don't find many owners wiling to sell to me. That is ok, I don't want every deal, only the VERY good ones.  But when I do find someone willing to deal, that is someone I am quite willing to spend time trying to buy their route.  I am in the process of finalizing a big deal that meets my criteria and will be happy to discuss it here when I finally complete it in a month or so.  I only have to much time so I don't have time to spend looking at every deal in my area, only the VERY good deals.

[WillisNYC]

One other thought for those of you selling 'equipment on location'.  Equipment on location should be valued by the amount of income it generates, not by what it costs the seller to place the equipment there.  If an owner thinks his equipment that is generating little income is worth what he paid for it, then he should try selling it on ebay or craigslist.  One look at those places should give you an idea of what your equipment is worth.  If you paid more than what it is listed for on those sites, then I am sorry but you paid too much.    Lastly, sell the equipment rather than the location if you have 'expensive' equipment sitting on a terrible location.    Expensive equipment is devalued by placing it on a terrible location.  Personally, if the location cannot generate enough income to pay for the equipment in 9 months or less, then you either paid too much for the equipment or made a bad locating decision.  The 37% of gross figure represents my goal of paying off a locations equipment costs within 9 months of placing  the equipment in that location.    It makes no sense to pay more than that for a route that includes that location if I can place equipment myself and get it paid off in 9 months.  Now every one of my locations does not meet the 9 month criterion because it is impossible to know the revenue a location will generate until you place the equipment and find out for yourself.  However I make my placement decisions with that 9 month goal in mind.  If I don't think the location will meet the 9 month goal I pass on it. 

So why should I buy a route using my capital that otherwise would be more productively used simply buying equipment and locating it myself?  The top reason to pay a little more than my 37% is because the owner is willing to self finance.  The next reason is to grow rapidly by acquiring more locations than I could possibly place myself during the time it takes to get a deal done.  Lastly, if the route contains locations close to my current route that logically fits into my expansion plans, I might be wiling to pay a little more for those routes.    Beyond these reasons above, I can think of no good reasons not to use my capital to buy good, used equipment, place it myself and continue to expand as I have been in the past.

[Beergut]

I understand you are trying to get the best deal for yourself while negotiating, but I'd be amazed anyone with any sense takes this deal. I agree with what you said about machines sitting around in a warehouse, which is why I think you need to price those off of what they are selling for on craigslist or some other used machines dealer (although I notice I didn't put that in my original reply). However, saying you are 'only buying an income stream' is inaccurate, simply because if there are not machines in that location, you are buying a location, not an 'income stream' If someone tried to use that argument with me, I'd simply point out that there is a cost inherent to doing business in that location, and part of the cost is the machines and the product, and if you want to buy that 'income stream', you need to pay the price of doing business.

As for self-financing, if someone came to me and said they'd pay 50% of gross for my business, only if I self-finance, what they are really telling me is that they can't afford to buy my business, and it isn't an offer to be taken seriously.

[WillisNYC]

Beergut,

You are missing one essential point that I am trying with some difficulty to get across.  Let us say for example that I have $10,000 to spend on m business expansion over the next 6 months.  I can either buy an already established route that brings in $20,000 in income over the next nine months OR I can spend the $10,000 buying equipment and placing it myself.  If I place it myself, I expect it to bring in $20,000 in revenue in the following 9 months after placement as well.  Now every placement will not do that much revenue, but some will do better and I expect to average those numbers that I lay out above when placing equipment myself.    Due to my ability to place equipment myself, there is little to no incentive for me to buy a route that does not meet the numbers I lay out above for my self placement route.  The ONLY incentive is to be able to receive the income immediately, because it will take me a couple months to get my equipment self placed versus buying a route in place.   

The main point I am trying to get across is that I am trying to deploy my $10,000 to capture at least $20,000 worth of gross revenue in the next nine months.  I know I can do that for myself.  Thus buying a route needs to be a slightly better deal than what I described in order to get me to part with my cash for the route.  Otherwise I am better off just building my own route for myself.  That slightly better deal can consist of owner financing, great locations near where I am already doing business, or a large route that I can buy immediately and I would be unable to duplicate in a couple months.   

Despite your protestations, there is little value FOR ME in a route that does not meet my criterion.  However, OTHERS who cannot place their own equipment or feel they are unable to, may place a higher value on the same route because it would cost them more (locator fees, etc.) to build a route that generates $20,000 in gross income in 9 months.    Those people would value a route more highly than I would and would be wiling to pay more.  That is who this seller should be looking to sell to. 

[Poplady1]

If you go to the NAMA website they have different resources there to help you value your business.  Of course a business can be sold for whatever someone is willing to pay.  Many vendors agree with Mission and I have never heard of anyone willing to the terms offered by WillisNYC.  But again you can offer any price you want and let the seller decide if it is fair.

It sounds like you have created a good route.  If you have good machines (Dixie Narco, Nationals, AP's) then you have something worth a good deal.  If you have a lot of manual machines, then you need to come down on your asking price.  

Can you show a buyer IRS returns reflecting the income and can you show them pick up records.  Also are you willing to let them ride with you for the next 4 pick ups so they can get to know the route and business.  All of these things will put you in a better position to sell your route to a happy buyer.  Each of you just wants to walk away happy.

Asking one years Gross is normal with additional funds if you have a lot of extra warehoused equipment plus the truck.

Blue Moose

[WillisNYC]

Just for the record, my valuation number is just for the route.  The truck, the unplaced equipment and the inventory should all be valued independently of the 'route' itself.  Those numbers are all much easier to do and I pretty much ignored them when I put out my number for this route.

[Beergut]

Willis,

If you are so good at locating and placement and always double your investment whenever you place somewhere, why would you buy routes from anyone else?

[mainor5251]

The only logical thing to do is put it on eBay for a three day auction starting at .01 with no reserve.  Felt it was time to inject a little levity in the thread. 

[antoniocinisi]

The only logical thing to do is put it on eBay for a three day auction starting at .01 with no reserve.  Felt it was time to inject a little levity in the thread. 

did you get my pm?

[mission vending]

I believe the original question was about a fair asking price for the route. In my years in this industry the general "rule of thumb"  is around 50% of gross and then add or subtract based on type, age and brand of equipment and other assets.

As Poplady mentions you can get info from NAMA, they have a spreadsheet calculator you can download (members only) that was put together by the Profit Planning Group, a national business consulting firm. The results when I have used it have been in the 50-60% of gross range.

Beergut I can honestly say that while the multiple rule works in many industries, it does not seem to be the case in ours. At least not the 3X gross as you mentioned. In any transactions that I have been involved in or read about in Vending Times or Automatic Merchandiser when there have been articles about large company buyouts that have given revenue and price information I cannot recall any transaction exceeding one years gross sales.

WillisNYC, your methodology of starting at 37% of Gross and possibly going as high as 50% under the right conditions is IMO hardball negotiating, nothing wrong with that either. It seems you are in a position where you can be patient and VERY selective and I don't see anything wrong with that, but again, the original question was a "fair price". Routes selling for that price (37%) in my experience are the exception rather than the rule.

[WillisNYC]

mission,

thank you for the injection of sanity.

Beergut,

I am neither so good at placement, nor locating and have had my fair share of duds.  However, it is not unreasonable to expect a snack or soda machine placed at a reasonable location to do $50/ week.  IF it does this, then it will net a profit of a little over $100 a month based on a 50% COGs and the fact that the average month is a little longer than 4 weeks.  That profit of $100/ week will pay off a $700 machine in 7 months or a $900 one in 9 months.  That would be an average used machine in a 'good' location.  Not great, not bad, just a good location.  My admittedly short experience has taught me that the above scenario is a 'reasonable' expectation.  I think that is why it is not unreasonable to expect to pay in the neighborhood of 50%  of gross that mission says most sales occur at.    I am just 'old school' in my negotiating or hardball as mission calls it.    And you may very well be right that I may never buy a route, but it is certainly not because I am exceptionally good.  I just work hard at expecting my placements to meet average goals and don't think it unreasonable to expect the same results in placements I may or may not purchase.

[Beergut]

mission,

I was talking to a buddy of mine who runs his own insurance firm, and he said in the insurance industry, the rule of thumb if you sell a business is 1x to 3x the annual commission they receive, so my 3x estimate is not for every business type.

Willis,

My biggest issue is with your statement that a route is only worth the revenue it produces, and not offering anything for the machines on that route. This is why the 37% figure is so ridiculous to me; it isn't playing hardball, it almost borders on insulting. Without the machines on that route, you aren't making any revenue, so saying you won't pay for those machines, or only trying to pay a percentage of the gross for the route and the machines is asinine. That is why I said the only perople who would take such an offer would have to be desperate or suckers.

[Gulp-It!]

Beergut, couple of things.

Every industry has its own formula for valuing businesses.  Some use xgross sales, some use xgross margin, some use xassets, etc, etc, etc.  Those are all appoximations using an easy to obtain number.  The operating costs, overhead, capital, risk, etc of the particular industry  ultimately impact the true net present value of the expected cash flow from the business.....which is really what the value of the business is.  All these 1x, 3x, 37%x, 50%x, etc. numbers are just rules of thumb for a specific industry meant estimate the value of the expected cash flow.  You can't compare a 3x in insurance to a 37%x in vending and say its harsh.  Those are apples and oranges.

Second.  If the equipment is worth more than the expected net present value of the cash flow earned from that location then the machines should be pulled from that location and sold for their value.  Otherwise, the equipment value is not relevant to a route sale as the cash flow from the location is greater than the equipment value.  What is relavent is the age and expect repair costs for the equipment.  If you are looking at the expected cash flow from an account and you expect the equipment to fail and need repair or replacement then that impacts the cash flow from the account. 

On a practical note, in my area small accounts (less than $3k/yr/machine) move for about 75% of gross sales.

[TGL Vending]

Here where I am in Tx we usually sell routes for .65 cents on the dollar, plus  whatever you value the equipment.

[spdydre]

Ok I am looking at a route and right now the owner is asking $18k.

One Bevmax 3

3 automatic P 4 wide

3 machines loaned by Coke

one Newco commercial brewer

one snack not on location

largest location under contract till 2012 but doesnt expect to lose

30,000 in sales per year

He said he would owner finance $5k down two years 8.5% interest.  Is this a fair asking price or should I shoot for lower since some machines are loaned?

[WillisNYC]

$30k gross seems awfully high for the amount of equipment that comes with this deal.  I would thoroughly verify this number.  Also, why does he have 4 wides in locations that would easily justify 5 wides?  He has to be doing nearly $200/week in each location in order to get to the gross you reported.  My best location with just one soda and one snack do $150 in a really good week and I am thrilled when they do.  I started with a 4 wide in this location and quickly replaced it with a 5 wide and moved the 4 wide to a slower  location as soon as I could.  Not saying $200/week is not possible, just very unusual in my limited experience. 

I assume you mean the 'loaned' machines are 3rd party from coke.  You can call the number on the machines to confirm who owns them if you give them the number on the side of all the Coke machines.  As long as the mahines are 3rd party and coke will give you a 3rd party account, I would not worry too much about this.  I would confirm with coke what the minimum purchase requirements are, but they rarely take back machines, just wont give you anymore if you dont buy enough product. 

Regardless, this seller is in the ballpark of what you want if the income is verifiable.  Is he willing to guarantee the income is going to be equal to 30k for the year?  Ask if he will drop the price accordingly if the sales are 5% or lower than he projected.  For instance the sales come in at $27k for the year.  If so, then he missed the gurantee by 10% and the overall price needs to drop by 10% which can be adjusted out of the second years payments to complete the sale. 

Current interest rates are 5% and I am paying no interest n the deal I am currently doing for 80+ machines.    I would ask him to drop the interest request, perhaps pay him a little more upfront if you can to avoid the interest. 

Also see if you can see tax returns or other information confirming the gross that the seller claims.

Since he is starting at 60% of gross, I think he wil be willing to come down to at least 50% so if everything checks out, offer him 50% or less to try and get him to bite.

Good luck.