Financing or cash only - 2 Methods for growing your business

[ThankYouComeAgain]

As I see it, there are only two methods for growing ones business, and if I am wrong I would like your input.  For now these methods are to finance the machines via a credit card or through a vending financing company such as Firestone or Vend Lease, and of course terms vary.

The other option is to pay all cash from your savings for machines, which can preclude one if cash is not on hand and can neither be saved up.

I know of one individual that went bankrupty while doing vending.  With that nugget, and without all of the pertinent info, I ask you, has anyone financed machines and regretted doing so?  If I were someone looking to grow my vending business, I'd rather pay all cash.  However, some people if not most do not have much cash on hand (COH) to make enough of a difference as current obligations (bills) preclude them from saving up to purchase new or refurbished machines.

Thank you and come again.

[dogcow]

As I see it, there are only two methods for growing ones business, and if I am wrong I would like your input.  For now these methods are to finance the machines via a credit card or through a vending financing company such as Firestone or Vend Lease, and of course terms vary.

The other option is to pay all cash from your savings for machines, which can preclude one if cash is not on hand and can neither be saved up.

I know of one individual that went bankrupty while doing vending.  With that nugget, and without all of the pertinent info, I ask you, has anyone financed machines and regretted doing so?  If I were someone looking to grow my vending business, I'd rather pay all cash.  However, some people if not most do not have much cash on hand (COH) to make enough of a difference as current obligations (bills) preclude them from saving up to purchase new or refurbished machines.

Thank you and come again.

you can also get a secured bank loan from a credit union. that is to say, if you have savings in the bank, the bank will make a loan, against the money in your account.

the money in the bank will be frozen for the length of the loan but will continue to earn interest and the interest rates on a secured loan are very low relative to a credit card or finance company, because the risk for the bank is very very low.

[rnl828]

All of the machines I have purchased were paid in cash.  I'd actually be interested in getting financing for more machines but as of now cash is the best for me since i'm just starting.

From a financial standpoint I see loans as investments.  Donald Trump gets investments for business ventures and so do other people.  Why care about interest if you are making great profits from your "venture".  Whether you are investing in real estate or a construction I believe if you can get free money, flip it, and pay your debt off why not?!?

That's just my 0.02

[The Mage]

That is the question.  But if the return is great, then you should be able to build up the cash from what you have in a small amount of time.

I am not against financing myself, but try to avoid it if I can.  You always need to take into account the risk involved.  If you have financing, and you hit a bump in the road, you could be heading for a disaster.  But if you only pay cash, the risk is much lower.

If you finance, you could grow much quicker, but at the same time, the financing could at least temporarily wipe out the income from your machines.  And then the question becomes did you profit from financing, or was it a wash?  If you ended up in the same position as if you didn't finance, then you took on a lot of risk for nothing.

If you do take on financing, make sure you can easily pay the bill without any income from vending.  Yes you will want to use the vending income to pay for it, but if you already know you can cover the payment, then the risk is much lower.  Then use the funds to pay off the debt asap, while making sure to stockpile some cash for emergencies, and so you would be less likely to use debt.

[rnl828]

That is exactly what I was thinking.  Don't bite more than you can chew. 

[RJT]

Financing can be a tricky proposition  in any business and vending is no different. Would I finance machines? Yes, but only under the right situation. First the account I am getting should produce a certain amount of revenue to justify financing equipment. Second, I had better have a decent contract with the account I am putting  financed equipment in.

I know a vending company that went out on a limb for 60k worth of equipment for a single account. The account did not do the revenue necessary  to make a profit after all expenses. Then to add insult to injury he lost the account a year into it. Now he is scrambling trying to get these machines placed so he can pay on the loan.

He made a few mistakes. First he accepted demands that he should not have. The account demanded new equipment, to much equipment, high commissions, etc. Then he did not have a secure enough contract to make the necessary changes to make the account profitable or not loose the account. Another crucial mistake was he missed the projections on what revenue the account would do.

Sometimes it is best to walk away from business if it dosent make sense. Sure, all business has risk but you had better limit the risk all you can and have a exit strategy if things go wrong.

I am not against financing equipment, I have a few lines of credit with some equipment companies. You just have to make sure you are borrowing money against accounts that will show a profit after expenses. If you pay cash for equipment and you get a dog account you can simply pull the machine or wait till a better account comes along to move it. With financing that option gets a bit tougher unless you have a good source of income other than vending to make the payments. Treat each account as a separate business within your vending company. Look at the account as if it was the only account you have. If after doing that it looks to make business sense then you have a much better chance of success.

In the end the risk reward factor has to be in line. An example would be, I would NOT borrow 4k on a new snack machine to do a hotel. However, I would borrow 30k to do a large hospital. The risk reward factor….

In summary;

Make sure the account justifies the money borrowed.

Protect yourself with a solid contract.

Make sure you can cover payments if things don’t work as planned for a certain amount of time.

Have an exit strategy if things go wrong.

[mission vending]

When I was starting out in this business I made the very nearly fatal mistake of too much debt. With the exception of my first 10 machines everything I bought was new or nearly new and financed. I woke up about 2 years in with a debt load that maxed out at 405K, and that was only on the equipment. It took me nearly 5 years working 80+ hours a week just to make the payments. It was a very unhappy time for me. One of these days I will get around to writing up my whole story for you guys.

Today I do have a little debt on some recent purchases but IF I finance equipment I use pretty much the same criteria RJT has mentioned.

My advice is to avoid debt as much as possible but don`t be afraid to use it if it gets you a great location. Pay attention and don`t get in over your head.

[NinnJinn]

Since I was/am just starting out, I went the 3rd party route.  Pepsi kinda spoiled that plan,  I was going to use the free machines to build up my capital to the point where I could pay cash for machines on an as needed basis.  Without Pepsi's cooperation, it is going to take me at least twice as long. 

[Boazcat]

I've done both with varying amounts of success.  I borrowed and overpaid for a route and got frustrated with that.  I paid cash for some other stops and have done OK with those.  I got a big account and borrowed $7 to buy used machines - 2 year loan $350 a month payments.    I lost the account (not due to any fault of my own) after 14 months and was saddled with those payments and just now got it paid off (2 months early). 

I've got no savings, but realize that I need to grow my business.

I'm stuck!

Michael

[ThankYouComeAgain]

I'm thankful for your responses.  I had a friend in a different industry give me the same advice concerning debt - if you don't have a contract, don't acquire new debt.

Another thing on my mind is the old saying, which I've found to be true: the borrower is slave to the lender.

It's true.

Thank you and come again.

[devin1986]

I'm personally against having any more debt than I need, but not everyone may agree with me. I started about 5-6 months ago with one snack machine, and although I'm certainly growing a lot slower than some would want, I know that all of my machines are owned in full and I'm starting to make a little bit of dough. I'll likely have 1-2 more drink machines in January and 20+ full lines by the end of 2011. Debt free!

[spdydre]

Most of mine I bought cash except 2 that are Coke owned and 3 I am financing on a one year term but will most likely pay off in the next month or two.  If you finance I would at least put half down or more and have very low payments that you know wont break your back if you lose the account or something happens.  Also try and work out deals with the seller of the route.  See if he will let you run the route and split 50/50 until it is paid off and write up a contract.  Sometimes it might work.  I have noticed alot of sellers down here getting rid of routes are willing to finance or work with you because many everyday people just dont want to spend thousands on vending machines and they are becomming harder to sell.

[The Mage]

I've done both with varying amounts of success.   I borrowed and overpaid for a route and got frustrated with that.   I paid cash for some other stops and have done OK with those.   I got a big account and borrowed $7 to buy used machines - 2 year loan $350 a month payments.    I lost the account (not due to any fault of my own) after 14 months and was saddled with those payments and just now got it paid off (2 months early). 

I've got no savings, but realize that I need to grow my business.

I'm stuck!

Michael

Always be careful of that urge to "grow the business".  Sometimes you just need to slow down, and take your time.  A farm is a good analogy here.  Regardless of how fast the farmer wants his crops to grow, they are going to grow as fast as they will, and no faster.

On a more practical side, many people are aware of reasons as to why businesses fail, but there is one that is almost at the top that almost nobody is aware of, and that is growing too fast.  The fear of failure keeps many people out of business, but quite a few actually find success, and quite quickly.  And as a result they think they can take the idea and expand it exponentially.  This often results in overextended debt, a bloated business, and sometimes a flooded market.  Some of these people only find out too late that their business was just a fad that ran its course, or bad timing with a drop in the economy, or a shift that made the business outdated.  (Blockbuster.)

With vending, I have learned it is good to grow, then pause, and work on what you have.  See where you need to adjust things here and there to improve profit.  If funds get tight it is a good time to take a break, and just run the business until funds are built back up to comfortable levels.  Also this could be a good time to reevaluate some of those locations.  There might be a couple that are not worth keeping. 

I just had a location that went from $30 a month down below $4 a month because they moved my machine.  I attempted to get it moved back, but that didn't work out.  The idea of just letting it sit until I found another locations sometimes sounds good, (free storage,) but because of it's location by pulling it I was able to reduce my route time by half an hour.  And even if I only would hit it ever other service cycle, it still wasn't worth the time or gas.

A good post on the subject is here:

http://vendiscuss.com/forum/index.php?topic=6796.msg51717#msg51717

Getting new machines, and finding new locations is nice, but that is only part of the business.  Taking care of what you already have is of utmost importance, and has a better return then finding new locations.  Sometimes a change in product can turn a dud location into a superstar.