If you have been offered to buy a vending machine business be sure to do your due diligence as this is a cash business and is many times difficult to verify whether it would be a good investment or not. The hardest part is making sure you will be getting what you’re paying for. Don’t base your decision solely on the number of machines along the route as they could all be poor performing locations and you would be losing money off the bat. Instead you should value the business based off of revenue. Remember your goal is to make the maximum amount of money with the minimum amount of machines.
How Do You Verify Vending Revenues?
Tax returns – This should be your first stop but almost it seems when looking to buy a vending machine route, the owner will tell you this number is understated because they did not disclose all of the income. Bad idea to tell someone this as it is tax fraud, but pretty common with an all cash business. You should get the past three years to check the trend to be sure the business isn’t declining. If you are going to try to get bank financing, the bank will require three years of tax returns as well.
- Run the route – By going along with the owner through his route you can verify how much money is being pulled out during a specific time frame to see if his numbers match the cash being pulled out of the machine. You can tally how much inventory is going into the machine and how much cash is coming out. The downside here is that the owner could have taken inventory out or stuffed the machine with cash before taking you along.
- Review purchases – Review the receipts for the inventory over a time frame (one year is best) and apply the markup to see if the owner’s numbers are close.
- Commissions – If the owner is paying commissions to the location owner, you can figure what the actual sales are (if the owner is being honest with the location owner).
Questions To Ask When Buying an Existing Vending Business
If you are looking at buying an existing vending business here are some questions you should ask the seller of a vending machine business before taking the plunge (after verifying income of course)
- Why are you selling? – Is the owner burned out or are they losing money?
Where are your locations? – Check these out to see if they are mostly good as some will probably be dogs. Also how sure are you that these locations are going to be yours after the sale?
How much does this business make? See the article on Buying an Existing Route for tips on verifying income.
What is the demographics/number of employees at each location?
- Are there rent or commissions at the locations? If so how much?
- Who makes the machines? – Check the values of these machines on eBay to see that they are worth what the owner is asking. Also research forums to see if these machines are reliable.
What is the time commitment to the business? How often is the owner stocking or servicing the vending machines and do you have time to commit?
Will the owner let you ride along the route? This gives you a chance to try out the business, see the relationship with the location owner and verify income.
- Will the owner introduce you to the location owners? A smooth transition is key to your survival after buying the business. If the owner isn’t willing to it may indicate trouble ahead.
Be sure to do your homework and verify everything someone is telling you when buying a vending machine business. While they may be honest, it’s a better policy to trust then verify.