Major Expansion Opportunity

[Boazcat]

My wife and I have small full line business with 9 locations.  We both work at a school and have worked this business part-time for the last 2 years.

We've been approached about purchasing a 33 location business in our town.  This is a 15 year old established business and the current owner is retiring.  Generates $1,500 weekly and it is verifiable income.  (His prices are still .50 for pop and candy because he hasn't wanted to go to the trouble of raising the prices.  We would increase prices to .75 at least.)  Asking $50,000 and includes everything, included 2008 van.  This route is serviced 2 days a week.  I don't have all the details yet.

While my wife enjoys working at the school our children attend, she makes less than $13,000 a year as a teacher's aid.  This would be a significant pay  increase and would be less hours a week working and allow her to do the field trip thing and more "soccer mom" activities...

We would have to finance that entire amount and that is very scary for us.  What are some things we should be thinking about and asking?  We know what it takes to run a business of this size and that doesn't concern us.  Our service-tech told us about it and he is very trustworthy and thinks this is something that would be a good fit for us because he knows us and knows what we are looking for.

Our entire family rides to school together everyday and that is something special, but all we're starting to see is $$$ and actually getting OUT of debt and enjoying life a little more.

Thoughts?

Thanks!

Michael

[g_r_vending]

Sounds like it will be a good money maker once you get the prices squared away with what they should be, be ready to loose a few that wont be happy with the price increase. In today's market although it might be worth 50k  I would not offer more than 35k. No one will have that amount of cash to buy the route, unless he is willing to finance this himself with half down and monthly payments no intrest. No worth 50k IMO.

[mission vending]

With 50 cent sodas I'd be VERY concerned about losing a sizable %age of accounts by going to .75. The poop will hit the fan. Offer to work for him for a few months while HE negotiates price increases with the locations. He can easily explain this by needing to pay the help, then buy it after the dust settles.

[spdydre]

I wouldnt quit my job for a route that might net you 40k unless everything is set in a contract for about 5 to 10 years and you plan on growing larger in that time frame.  I would never sit on a small route and become comfortable especially if I had a family to take care of because then the next thing you know everyone kicks you out and you have no money and no job.  I would keep the 9-5 or even find a pt job if she really wants to leave that bad then run the route pt.  Now if she can easily leave her job then go back at any time she pleases then go ahead with your plan.

[gogo]

While the current responders are more experienced than myself, I will add my input since I am in a similar situation as you.

First off, I think raising to $.75 is a bad idea. Why not go to $.60 or $.65 for awhile and see how it goes? That will probably be palatable to the current customers. $.75 on cans alienates people. I've seen it happen. You will then end up not owning the business you thought you bought ... because you have changed it! You will lose revenue if you jump 50% in prices!

Can your wife keep her job as an aid and simultaneously work the route for a few months or even a year? That will really ease the debt burden because cash flow is more likely to be sufficient to meet regular and unexpected living needs. If she can put off "soccer mom" status for awhile, you will probably sleep better at night not worrying about debt. Yes, it does mean more work, but the family will come out better in the long run. Good cash flow = security.

In my market, routes just don't sell for more than 65% of gross. Your area may be different, but the price of the route you are looking at seems too high to me.  Can you use your existing vehicles(s) to run the route and keep the new van out of the sales price?

Just a few thoughts to consider.

[Poplady1]

With 27 years experience in full line vending I hope you take these comments to heart.  A route with products priced at .50 will be a major problem when it comes to increasing those prices.  You will lose a lot of your customers which will put you in a hard spot when it comes to repaying your loan.

The pricing factor alone makes this route worth much less then the asking price.  Caution, caution, caution my friend.

This seller has a route that will implode once you adjust the pricing to the current market rates.  Before taking on this bugger I would meet with each account and explain the need for price increases.  Find out if they are happy with the machines and product selection.  I think you will find many of them are just keeping the machines and service because of the low pricing.  Once that changes they will pick up the phone for new service.

Now if this route had normal pricing I would never recommend meeting with accounts before sale. But in this case, because you are considering a loan, I would tell the seller it would be necessary.

Blue Moose

[Poplady1]

I just reread Missions suggestion and I would jump in that lifeboat if it were me.  Great way to handle the situation.

On the value of a route.  So many articles and books say this about a full line vending route value, two years net or one year gross....(same thing just stated differently)

Blue Moose

[Boazcat]

We passed on this offer.  We did express some interest in going after a few of the locations that were closest to us - we'll see what comes of that....  My wife is going to continue working and this will be our part-time gig.

Thanks for the great advice!

Michael

[gundog]

I think the route would be worth close to his asking if the margins were better.    If you could pick it up cheap it may be a diamond- just depends on the machines and how much you trust his numbers.  If I were able to buy dirt cheap, I would get it and raise prices 20 to 30%- this is 10 to 15 cents on can soda.  This would be acceptable to most places I would believe.  20% on 80K is 16K- that is a nice increase in sales making the deal you got even better.  Now you may lose a few but you have to factor that in.

As far as price- let me put this out there- I am a cheapskate.  So many on here say I wouldn't pay over 50% or 60% or 65%- well I say that is a very shortsighted and narrow approach to business.  Not all accounts are the same.  For example 24/7 access to a $100+ a week soda only account with high margins, 5 minutes from my house, with numbers that are absolutly solid is worth a heck of a lot to me.  I believe there is some value in peace of mind to know the #'s are right.  I would gladly pay a certain amount more to get something secure vs. what is cheapest.  I will buy the above account all day long for 75% vs. a 50% account from somebody who is going to inflate the sales #'s and try to make it something it isn't.  (I would probably be paying 70% or better anyway in the end)  Like I said, I am pretty conservative and cheap but there is some risk to owning and doing business.  Once in a while you have to take a chance to make your business.  

[gundog]

To continue on what I was writing above- say you overpay by 10%- what does that really equal out to?  a month probably?  A fair trade off to me for a good account.   We all want it as cheap as possible but as long as you get it for under 100% of sales you are probably all right.  Heck when I just started I am sure I bought some for way too much but ya know -they still make money.

On the other hand, I believe many good opportunities are lost forever by being too conservative.  That is not good business either.

So moral of the story is good business person can make a diamond out of coal.  And the beauty(value) of the route is in the eye of the beholder.

If it has potential give it some time and make him a low offer- he knows it isn't worth 50K if he is selling snacks for that low.