Are you currently facing an opportunity to purchase a Vending Machine business? Or, maybe you are contemplating either buying a vending machine business, starting a vending machine business or buying someone’s route. If you answered yes then you my friend, are very brave and very smart for looking to Google for answers. You’re trying to do your homework and I commend you. Since I’ve been in your shoes, I understand what you’re going through, because you just don’t know what you don’t know. The concept of a vending machine business sounds so attractive because of the allure of a semi-passive income stream where the machines make money when you’re not working. However, there are some realities that I can give you a glimpse of, and hopefully it can help you decide if this type of business is the right fit for you.
Let me give you answers for 20 questions to ask when buying a vending machine business! It’s important to read through this, and allow us to be your brainstorming and sounding board partner.
Please also read below on how to start a vending machine business from scratch if you decide to not purchase someone elses route or business, but start it from ground zero.
Let’s Begin! Questions to ask when buying a vending machine business…
There is actually quite a bit to investigate in your due diligence. Start taking notes and make your list.
Beware: You’ll notice that in some listings on buying a business they will say something along the lines of “If you do “this” you can really grow this business!”, but this is all speculative. It always makes me chuckle, because if it were that easy they would have done it. And, If you go through teh trouble to take those actions they claim will help you earn more, you might as well just start your vending business from scratch.
The whole point of buying the vending machine business is to short cut the hard work of securing locations that actually have been proven profitable.
How much money is the Vending Machine Business being sold for?
I realize this is an obvious question, but you’ll have to take the number that they are selling the business for, and then divide it by the annual NET profit (see below on the 2nd question to ask) to see what the multiple is. In determining the value of how much a business is worth it is a helpful metric to know the “multiple”. So for example, if someone is selling their vending machine business for $180,000 and they earn $60,000 in NET profit per year, your multiple is x3. In other words, Value of the company is x3 their annual NET profit. (Sales Price / Annual Net Profit = Multiple). In my opinion a x3 multiple is fair for a vending machine business. Keep in mind this multiple is just a rule of thumb, and how to value a company can often be subjective. In addition there are other factors that can play a role too. What I outlined here is the most basic way to look at it. Continue reading below to ask more questions to see if a higher multiple is fair or should you decrease it a little bit.
How much money are the machines earning per month?
The most important number to know is the NET profit, which is basically your Sales subtracted from your Cost of the Product (e.g. SALES – COGS = NET PROFIT). It is really important to get a report of how much sales each machine is making per month. In other words, what are the Gross Sales? However, Gross Sales doesn’t provide the whole picture, because if the products are very expensive and the profit per product is low it would skew your perception of how much the machines are actually making in terms of money in your pocket. At the end of the year, you’ll also have to factor in other expenses that will play into what you are netting at the end of the year.
Generally, if you can achieve a NET profit of $200 to $500 per month then you are doing pretty well. Obviously, $200 is a minimum per machine and $500 would be above average. $700 to $800 would be excellent! Keep in mind that some machines might do really well, where some might not do so well. In the end if you average out at $350 to $400 per machine across all of them, then that is not bad. (NET profit or sometimes called Net Income is what your profit is after you take the total Sales number and then subtract out all your costs). A lot of times I’ve noticed that when reading other articles online they always say the total sales figure (i.e. Revenue or Total Sales), and even that is inflated. No one talks about NET profit because it doesn’t sound as high of a number as Revenue or Total Sales, but in business NET income is the most important number. Everyone likes to say they sold X dollars in product, but they don’t say that it cost them Y dollars to buy that product in the first place.
So, if you own 10 machines you are making $4,000 per month. Keep in mind to run 10 machines in terms of filling them is probably about 8-10 hours per week depending how far you have to drive per machine.
So, as far as a small business or side hustle that is excellent! Also, if you scale your business right you can be making A LOT more and into the 6 figures.
What are the ages of the vending machines?
How old is the vending machine? This is important to know (I get it is obvious, but don’t forget to ask!) If the machines are greater than 10 years old, I would be worried as they will be prone to fail in some part of it. If you take the risk of buying older machines just make sure that you are good at repair and have the time to go fix them. Most vending machines are not difficult to repair if you are handy. Make sure the machine you buy has some modular aspect to it. For example, if a coil stops working, do you know how to access the motors? Do you know where to buy spare parts? If the machines are over 10 years at the location, I would be hesitant to pay a premium because you’ll have to invest more into fixing them or replacing them.
Where are all the machines located?
This question can refer to where the vending machines are located in reference to each other spread around the city, and also where the vending machines will be placed in the location. Concerning where in the city, this is very important to know because it will dictate your vending route. If you are fortunate all the vending machines are located within a cluster, and then you can fill them all or part of the group together. So, let’s say 3 are really close to each other, you can fill them on the same drive.
Concerning where the vending machine is located at the specific location you just want to make sure it is in a high traffic location. For example, if the vending machine is placed in an office setting, the best place is often in the breakroom. If it is placed in a shared office building with many different businesses in different office suites, then placed somewhere that is visible to the general traffic is a good idea. However, in one of our vending machine locations we placed the vending machine near the restrooms and mailboxes per the recommendation from the building property manager, and it actually performs well! People know where it is, and this machine actually gets quite a bit of traffic. Sometimes, you may underestimate a location and it turns out pretty good and sometimes you may think the location is good and it isn’t.
What Type of Business will the Vending Machines be Placed In?
This is important to know so you can judge how successful the machine will be. Will the machine be in a library that doesn’t get a lot of foot traffic? Will the machine be placed in a warehouse where you will have a lot of thirsty workers? Perhaps it will be in a school, but if it is in a school will it be in the teachers lounge or for the students? If the machine is for the students you will have to read up on the guidelines for what food can be sold to the students. Will it be in an office building that is shared with several tenants?
Who is the responsible contact for each location?
Can I talk to this person to hear how their experience was with their vending service? You should get the name, phone number, email address of the person in charge of that location. You’ll want to keep a good relationship with this person, because they will be your life line and connection between your business and the host location of your vending machine. When you first meet this person assure them that you will provide excellent service, the frequency of when you will stop by to fill the machine and what to do if something is wrong with the machine, if a snack or drink gets stuck. Can you talk to each of the responsible people? You can ask them how their experience was with the machine. If they tell you that snacks got stuck often, then that is an indication that something was wrong with the machine. Will they tell you they dealt with expired products? If it was just a problems with the service, you can turn the place around by telling them your ownership will be different. You’ll want them to notify the customers that under the new management it will be better. You might even consider running some discounts or promotions to show that you are serious.
How many employees are at each of the vending machine locations?
We recommend that there are at least 150 people at the location where you will place your vending machine if it is in a company or shared office building. Of course, if it is in a public place you wouldn’t know, but what you could do is go to the location on a busy day and see for yourself how many people stop by. Technically, you can probably get away with 50 people if they are frequent buyers. For example, 50 blue-collar workers in a factory where it is a huge hassle to go off campus for drinks and snacks can be a good location. Of course, the more people the higher chance people will use your machine
Why are you selling the business?
Is there something wrong or are they not making enough money? Is one of the locations about to kick them out? Are there any agreements that are about ready to expire? For example, you would not want to buy a vending machine location where they are about to kick you out for a fresh mart or micro-market. The most used excuse or reason for selling a vending machine business is probably getting out of the business to pursue other ventures or business. Maybe it is retirement.
What Vending Machine Software is being used?
We’ll have to write an article later on what you need from vending machine software, but in summary you want your software to track inventory and sales. Just contact us for more details on our opinion on what’s out there:)
- You’ll need a way to get the sales data from the vending machines into the vending software. For example, Cantaloupe (https://www.cantaloupe.com/) provides a software called Seed Live. This software has all information about each sale made by the machine. It breaks down cash sales, credit card sales, which item is purchased…etc. Then when you go fill your machine you need to check your software to know what is empty in the machine.
Will you be able to assume the software used to manage all the machines?
The minimum software you need is a way to reconcile daily the items sold with the inventory in the machine. A good software will help you achieve this. If you don’t have this how will you know what to fill when you go fill your machine.
Do all the vending machines have the same credit card reader?
It’s okay to have different credit card readers (i.e. made by different companies), but it would of course be easier if they came from the same manufacturer for purposes of easier support and knowing the nuances of one device instead of several. If all the credit card readers are not made by the same manufacturer you’ll need to find a vending software that can combine the data from more than just one reader. You may need to get a 3rd party software that is not linked directly to the credit card reader itself. In other words, each credit card reader will have a software paired with it, but you can try to find a 3rd party software that supports multiple readers. Credit card readers need a good cellular signal to operate effectively. Check the cell signal per location by checking how many bars you have on your cell phone. Credit card readers do have a function on the device that allows you to read the quality of signal as a number value.
Are any of the locations getting a commission?
If the answer to this question is YES, what is the amount? Is it a percentage based on the total monthly sales? what is the period of payment (e.g. commission paid out every month and end of the month)? Schools might ask for a commission. You’ll have to know this so you can factor that into the NET profit. However, if it is not a school you should negotiate with the location to not pay out a commission. You can explain that you don’t pay out a commission because the machine is free to place at the location, and you need to earn back the investment you made in the machine. You can say that your margins are not incredibly high so you have to be careful on your profit margins. Also, you are not obligated to give your profit margins to the locations, that is your private company information, and it should stay that way. If they still don’t budge, the worse case is you can just move on and refuse the location. There are plenty of others out there.
Below there are more questions to ask when buying a vending machine business or vending machine route.
- Do you have a contract in place at each location? If yes, what are the terms of this contract?
- How many times do you go per month to each location? We believe it is helpful to go at least once a week or once every other week. It’s important for customers to see you are there that there is a person and company behind these machines. It’s a good way to build good relations with the machines. Others might have a different opinion on this.
- Where do you buy your product? Are there any vendor relationships that would come with this? The easiest place to shop if you have 20 machines or less is at Sams Club and Costco.
- How many products are being sold? If the operator has a good software this should be easy for them to know through generating a report.
- Other equipment like a truck…etc.? Probably not, but just checking if it is a big business.
- Buying just the route or also the LLC. Don’t need to buy the LLC just take the route.
- Is there a website with the route?
- 3-5 years of tax statements to verify profit/loss?
- How are you valuing this business? X2 multiple? I don’t think a vending machine company will be sold more than an x2 multiple.
- What can I add to this business? Do you have any skills that you can add to this business? Are you good with sales to secure more locations, are you good with tech to build the website, are you good hands on to fix the machines…etc.
- How stable is the monthly income? Do you see a steady trend? Of course it might slow down in December when people are on vacation and not at work.
- What will the handover look like? Training included? How long will they provide training? I would even hold back funds and not pay all until training is complete. So, for example hold back 15% or 20% of sale until this is finished.
- Do you have enough capital to invest? One thing to consider is if you truly have capital to invest are there other areas better to invest in? Depending on your personality and skill set a vending machine business can be perfect for you!
- Are there any problems with any of the machines? What has recently been serviced? Do you have a service record per machine. A good way to double check how the machines perform is to talk to the representative at each location to see if there were any complaints.
Advice
- Watch for traffic flow: If possible go to a few of the locations, watch how often people use the machine, and talk to the customers and see what their impression is of the machine. In the conversation you can even ask if they have any suggestions.
- Observe and see how much people are actually buying from the machine in a given day.
- Are you personally ready to take on this challenge? Will you be ready to be a hands on operator and make the fills yourself?
Read More Here: https://vendingwealth.com/start-here/
Another option is to start buying machines on your own.
https://www.amequipmentsales.com/prodcat/new-vending-machines/new-combo-vending-machines/
References
References
Read more below
https://en.wikipedia.org/wiki/Net_income