building business

[gundog]

How did all of you get the finances to build your business?

Most of my business I have purchased from other vendors in the area.  So far I used my own capital to do this.  Anyone use bank loans or other investors money to build their business or are you just patient and wait till the business has enough money to expand on its own?

I have an opportunity to purchase a nice solid route.  I am out of my own capital to expand, however,  I don't think it would be a problem to find an investor.  So far I have been content to just expand at my own pace, but I am considering this option.  Optimally, I would think you would stay completly out of debt but many and probably most businesses do take loans.  I am not considering a bank loan, just a family member as an investor.

Thoughts/experiences?

[spdydre]

I have started with my own money but I have had alot of friends wanting to invest or loan me extra money for the business at a return for them but have decided to wait it out and be patient and just feed the money from the machines into getting more machines.  I wouldnt do it unless you come along a really good route that is generating a high income( 200k+ in sales )for a great price but thats just me.  Also if funds are limited look into owner financing on a route.

[Sparta_Automation]

We started our business as a partnership.  We initially invested 1/2 of the capital needed from each partner.  Since then, we have just used profits from the business to expand as needed.

I would rather take a loan out from a bank then have outside family/friend investors.  If the business tanks, you could have some hard feelings from former friends.  Also, if they have an emergency and need their money back in a hurry, would you feel obligated to accomodate them?

Because of these reasons....we decided to simply keep it within the original partners or get a bank loan.

Travis

[gundog]

Very good points.  These days, I think a bank loan is probably out of the question due to the nature of the business and due to the fact the banks are being tight with money.  I don't know this for fact but I have been told this by others.

For me the only real options are waiting and buying a location or two at a time- since I am only doing 20-25K in sales it would probably take 2 years to save to buy a route equal to what I have.  Or using a family members money and getting the revenue in place now.  Right now I am only working vending one full day every other week.  I would like to have a full day every week.  That way I am still doing this part time but have a very nice side income.

[Poplady1]

Not sure if you are interested in moving in this direction but we worked hard to establish a route with solid reportable income.  We deposited everything we made so when the time came and we wanted a line of credit we had a history with the bank. We tried to do everything with one bank, buy cars, get Visa cards and set up checking accounts.

And sure enough they set up a line of credit when we wanted to expand which really helped us move to another level with our company.  But I will be the first to admitt we worked less and made more money which we could pocket when we were smaller.

Blue Moose

[mission vending]

Very good points.  These days, I think a bank loan is probably out of the question due to the nature of the business and due to the fact the banks are being tight with money.  I don't know this for fact but I have been told this by others.

For me the only real options are waiting and buying a location or two at a time- since I am only doing 20-25K in sales it would probably take 2 years to save to buy a route equal to what I have.  Or using a family members money and getting the revenue in place now.  Right now I am only working vending one full day every other week.  I would like to have a full day every week.   That way I am still doing this part time but have a very nice side income.

Bank loans are not out the question BUT bank loans for the vending industry can be very difficult. I'd recommend setting up your account at a smaller community bank and make a point of getting to know the people there on a personal level. Once they know you and you are, hopefully, increasing your deposits it'll be much easier. For the current deal though it won't be of much assistance.

For new equipment there are a number of funding sources but not much out there for existing routes. I would not recommend having friends and family as partners or investors, I'm not willing to risk the loss of a close friend or family relationship over $.

My .02

[JPVendCo.]

money down and a contract sale is what I do.

this stuff doesn't just up and sale all that well, so alot of people will sale it to you on a contract. done it twice!

[mxer518]

I have said it on here in the past in quite detail but the only way good way to get financing for large route or equipment purchases is through a leasing company that deals with vending company on a daily basis.

[Mikey B]

My wife and I got into an argument one day over finances and I stormed out of the house.  took a little drive to the gas station to pick up a paper to see about finding a second job. I saw 6 machines next to each other, While reading the paper in an empty parking lot, I noticed people coming and going from the machines.  So for 30mins I watched and there were 3 people that stopped by those machines, one person bought more than one drink.

So it got me thinking  " even at the very worst, if I only sold one item per machine per day, that would still bring in a $90+ profit each month after cost of goods."

So I went home, got on the computer and googled things...  First thing that popped up was this site....

Then I found craigslist and found some machines that a guy was despirately attempting to get rid of. So I bought them and he even delivered them for me.  I got the 8 machines for $2400.  I didn't have the cash for it.  But he mentioned that he wanted the money for a storage shed.  So we settled on a deal. he and I went to Home Depot and I used my Credit Card towards a Shed/storage building.

After I believe 3 months, I had the CC paid off and I have never looked back. 

No, My route wont make me rich and cause me to retire early  but it is nice  having an extra $1500 each month...  And I just reinvest it in other routes.  Hoping one day, When I  retire from my day job, I can buy a huge gas guzzling RV to travel all over the US and pay for my gas one quarter at a time! lol

[Sparta_Automation]

No, My route wont make me rich and cause me to retire early  but it is nice  having an extra $1500 each month...  And I just reinvest it in other routes.  Hoping one day, When I  retire from my day job, I can buy a huge gas guzzling RV to travel all over the US and pay for my gas one quarter at a time! lol

AMEN!

[andyinchville]

HI,

I say if the numbers make sense and you can get a loan from somewhere (whether it is a bank, investor, friend or realative etc...), I say go for it.....just be sure all the terms and conditions are agreeable to all (this would be a moot point if dealing w/ a bank or investor since I am sure that will be business oriented....this would mainly apply to friends, family etc).

I was not in a position to obtain traditional financing when I first got my route (already had too many loans out according to new banking rules) so we did some creative thinking.....Owner wanted out, I wanted in, owner did not want to owner finance in case I let the route go to pot...in the end I traded some land I owned for his business.....every situation is different but in this case that is how I "financed" getting his business.

Andrew

[gundog]

Thanks for all the experiences.  I haven't decided on what I will do just yet.  I like the idea of waiting till I have the funds available.  I would like to say I built the business completly on my own. 

On the other hand, I have a free day a week that I could take on more work and it is not my style to sit still very long. 

What is the normal term in months/years to payback a vending business loan?  I would think around 2-3 years would be ok.  That way you are putting about half your profit back to the loan.  You could pay back sooner if you wanted to.

[gogo]

gundog,

I entered the vending business by buying a 20k route that I financed on credit card cash advances at 24% !

My friends and family said I was a fool, but I just sent in my last payment on those cards ... paid it all off in 9 months.

I would love to build this business "on my own" purely out of my own cash, but when I sit down and take a good look at the numbers it makes sense to finance. I can grow much faster by financing and still maintain a reasonable risk factor.

In the interim, those same skeptical friends and family have since given me loans to expand. When I sit down with a spreadsheet and show them that the cash flow is good and can easily support my proposed loan, they begin to see an opportunity. I am offering better rates of return than a bank CD or money market account, and stocks are still questionable to many. They know me and my work ethic. They know I am dedicated to making this business work, so I have closed some financing deals with acquaintances who see something in it for them.

Personally, I have gotten nowhere with banks. I think that as my business grows, they will give me more credence, but I am still too small for them to really take seriously.

My approach right now is to get money wherever I can get it. As I grow and look more and more like a legitimate small business, other opportunities will surely arise with more traditional financing.

BTW, I am expanding with my own cash as well. About 25% of my new business was acquired with cash from the business. I ask for loans between 24 and 30 months. This term works well for my particular situation ... your situation,  of course, may be different.

I am fortunate to be in contact with many successful business people who own their own businesses. I make it a point to ask them how they got started as a business owner. I have heard the most amazing stories. Very few of them started with traditional financing from a bank. Most had to put their a** on the line with personal guarantees and very creative financing until they got established with true business credit. And these are guys who own very large businesses.

So, for me, I'm taking money wherever I can get it for now, with the goal of eventually growing from my own earned capital.

Just my $.02. Hope it is useful. 

[gundog]

gogo,

If you don't mind me asking, at what rate do you and your investors think is fair?

[gogo]

My private loans are between 6.5% and 8.5%. I'm thrilled with that range. Remember, these folks aren't out to make a killing on me, they just want to help me out and get a competitive rate of return. They sure aren't getting that kind of return from a savings account or any other bank product.

Considering I was paying over 20% on the credit card advances I started with, my overall interest rate for most of this first year was about in line with a traditional loan. Now that the cards are gone, I'm really pleased to be up and running with fairly low rates. But I had to take the leap with the crappy loan to start with to get the ball rolling and show people what I could do.