How To Buy A Vending Business Successfully: 6 Top Tips For Buyers

Some of the Californians looking for a company to purchase are advised to buy a vending business - an enterprise that deals largely in cash, with no receivables, and is in an industry somewhat resistant to swings in the economy.

But prospective buyers have heard about problems involving the sale of vending accounts which did not produce revenue that was promised and expected.

Among the key factors to understand by anyone considering a purchase in this industry are:

Going Vending Business vs. Vending Opportunities

The source of most problems reported by buyers who didn't get what they expected involve their purchase of machines newly placed in company lunch rooms, school corridors and other locations with the hope that the collections will be sufficient to pay expenses and also produce a satisfactory profit for the machine owners. Results often prove disappointing. With no track record for generating a solid level of continuous sales, it's likely those locations won't account for enough vends to provide an acceptable return on the investments.

These opportunities are not the same as when you buy a vending business serving long-existing locations that have a history of generating income for the owner. In that case the buyer will pay the price for a going business with a good track record. The cost of this goodwill makes an existing operation more valuable and it will require a substantially higher investment than usually required for the purchase of recently placed machines, inventory and hopes that the equipment will get frequent use.

Requesting Vending Route Performance Reports

One smart tactic for a buyer interested in this business is to ask the seller to provide account records for each location. This material would not reveal the names or locations where vending machines are located. But the information would include types and number of machines in each location, the amount of collections during a specific period - every two weeks or every month are examples broken down by machine and the amount of "commission," if any, paid to the location. In other words, a prospective buyer might learn that in location A, there are four snack machines that collected $640.00 last month, eleven soda machines that produced $1,318.50, two snack machines yielding $545.00, and a candy-only vending machine with $203.00 in sales. This data gives the buyer prospect a very good picture of the business without disclosing the names or locations of the accounts.

Types Of Machines

In addition to machine types related to the kind of product they vend, there also are distinctions made as to the age of the equipment. As most vending customers are accustomed to the option of using cash or a credit/debit card to make purchases, the operator with machines still limited to cash transactions is not generating the level of sales possible. Besides, it's hard to keep an account when its employees, students or other participants in an organization are unable to benefit from the vend machines when they don't happen to have the needed cash. Cash/card equipped vending systems are in wide use and if the company for sale doesn't have that kind of equipment in the field, it may not be a good purchase candidate. Or an interested buyer should negotiate for a price that is low enough to enable him or her to afford to upgrade or replace the nearly obsolete machines with more modern equipment.

The buyer may also encounter a vending company on the market that uses Internet available machines so the owner can monitor every single purchase at every machine. Prospective buyers should know that not everyone in the industry thinks the benefits of this technology are worth the cost. Perhaps the key advantage to using state-of-the art vending equipment is that some account decision makers are so impressed and intrigued by this capability that it helps persuade them to become customers of tech-forward vending companies.

Commissions Paid To Accounts

Buyers investigating this industry might be surprised to learn that some accounts receive commissions from the vending company - usually a percentage of what is collected at the machines. This is not an unusual practice and might be worth the cost to the vendor if the account represents a source of considerable income. Smart vendors sometimes suggest that their accounts use the commissions to fund parties or other benefits for the people served by the equipment. It also is not unusual to find organizations, particularly businesses, that subsidize the vending. Their goal is to make the purchases particularly affordable, as a concession to their employees. That means the vendor sets low prices and the account pays the difference between the amounts collected and what the vendor would receive with normal product pricing.

Condition of Vehicles And Premises

The smart prospective buyer asks to see the maintenance records for the vehicles, usually vans, used to deliver machines and product. That not only allows the prospective purchaser to learn about the condition of the fleet some of the capital equipment that may be purchased in the deal but also provides a clue as to how conscientious management is about maintaining an efficient and safe operation. That also applies to the general appearance of the warehouse where the company stores equipment, parts and, of course, the consumable merchandise sold in the machines. Some buyers might be persuaded to believe a messy place of business reveals a company so busy making money there's no time to use the broom. While this may be true in some kinds of businesses, it's a bad sign for a vending company.

Vending Company Market Values

The rule of thumb for pricing companies in this industry is fifty percent of average annual gross receipts plus market value of the equipment. This is a very general rule and should be adjusted up or down, depending on the condition of the facilities and equipment, the average length of time the company has served its accounts - loyal, happy customers add to the value of the vending company, average length of employment for the workers, and terms of the deal. A substantial amount of seller financing, for example, can increase the value of the offering.

It is true that vending companies can profit during good economic times, when people have extra money for impulse purchases, as well as in less affluent conditions, when machine users believe a vended treat will take the place of a more expensive meal. Before starting to look at these companies being offered on the market, it's important to understand some of the factors to use when evaluating various offerings.

Categories: BizBen Blog Contributor, Buying A Business, How To Buy A Business

Contributor:

Peter Siegel, MBA, BizBen Founder, ProBuy, ProSell Programs

Areas Served: All Of California

Phone:  925-785-3118 Cell, 925-785-3118 Text

Founder & President Of BizBen.com (since 1994). I am the Lead Facilitator for both the ProSell & ProBuy Programs. I consult daily with business buyers, business owner/sellers, brokers/agents daily about buying and selling California small to mid-sized businesses. Call 925-785-3118.

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