A Step-by-Step Guide to the Successful Purchase of an Existing Vending Machine Business
Although it is possible to start a vending machine business from scratch, many entrepreneurs look for existing routes or businesses for sale. The option to take over an established company is much simpler than doing everything yourself. Also, a geographic area may already be well-stocked with vending machines and service companies so there is really no room left for another one. Competition is sometimes fierce when it comes to getting the best locations in the vending industry, but challenges such as this can be handled.
How to Buy a Complete Vending Machine Business
One of the best reasons to purchase an established vending machine business is the immediate source of income it provides. If you start from scratch, it will take a considerable amount of time to establish a route and develop relationships that can help make a profit.
While there are many possible benefits to buying out a vending machine business in action, there are plenty of questions to ask before you sign ownership papers or pay any money.
Having an existing personal or professional relationship with the current owner of the vending machine business you wish to acquire can help. Research about their business success, the routes they have and relationships with both vendors and location managers should be done well before you even consider making an offer on the company. This camaraderie also helps you know if the person is honest and trustworthy and whether they keep the vending machines in good repair.
What happens if you do not know a person who wants to sell a vending machine business? How do you find one to buy? By reading the steps outlined below, you can easily identify and locate a successful business to buy out.
1. Find out why the current owner wants to sell the business.
There are both good and bad reasons to sell a vending machine company. Of course, some people may unscrupulously try to unload a failing business, but successful businesses can also be for sale. Perhaps the owner has reached retirement age, is getting a divorce or wants to move to another part of the country. Perhaps they just want to change their career or need a chunk of money for a medical procedure, their child’s college education or a new sports car. When you are researching potential vending machine businesses to buy, always ask the current owner this question. Do a bit of investigation to find out if the answers he gives you are true.
2. Ask about the current route and research locations for possible problems.
An honest vending machine business owner should be happy to let you ride along on the route to examine both the vending machine operation itself and the professional relationships he has with the site managers. Another option is to receive a location list and contact information for the people that sign the vending agreements. You can then visit each to check out the machines' condition, number and time of the vending transactions and any information customers there can share about their favorite products or service.
Is the current owner using any vending machine software to optimize his route to his vending machine locations? If so, ask to see historical data – this will help you understand how the owner has managed to optimize his visits and what the quickest route is. The reports generated by the software will shed light on the performance by location and per machine, as well as provide an insight into the seasonality of each location. You’ll also get a glimpse of the mileage log and this way is able to calculate the cost per visit.
3. Give all vending machines a thorough inspection.
A full inspection of all the machines that the vending business has for sale is necessary to understand what you are getting for your money and to make sure everything is operational in order to realize a profit. If any of the machines look unsightly, worn out or have many “Sold Out” labels, the location may be undesirable or the machine itself may be too old to attract sales. These are just some of the red flags that indicate neglect or for maintenance by the existing owner. It can also lead to negative impressions by the location staff and accounts that may close or failed to make money. Contacting whoever agreed to have the vending machine there can help you determine their opinions and whether they welcome the continuation of service.
An additional tip: be sure to get access to and go over the reports the vending machine software can generate for you to discover any potential performance issues related to each vending machine and its location.
4. Examine 3 to 5 years' worth of tax statements and profit sheets.
Examination of the tax returns and accounting profit sheets for at least 3 to 5 years is essential to determine whether the vending business operates in the black and can therefore make you money if you buy it. If you are not experienced at owning a vending business, this paperwork can also help you understand operation costs and company structure. Other financial information is important to know: commission percentages to location owners, total revenue, profit percentages over cost and any assets, including the machines themselves, that are held by the company. Comparing the profit sheets and inventory reports with your prior information about sales at different locations should give you an honest look of the situation.
All this information might be readily available in the current owner’s vending management software. Easily find and analyze reports such as sales tax, P&L, and Cash Flow statements out-of-the-box.
5. Go over the current contracts.
A vending machine business is only as good as the contract held with location owners or managers. Examine all existing contracts to see which are the most lucrative and which may need to be re-signed if you purchase the company. Also, be aware of any “Change in Control” clauses in the contracts that allow a location owner to cancel the contracts if the vending company changes hands. This is especially important as you want continuous profit from the start of your new ownership.
Some vending companies do not own the machines they use, but instead, rent them from third-party sources. These leases must continue if the company is sold to you, the new owner.
6. Contact the Better Business Bureau to check for complaints or other issues.
Check for any existing or repetitive complaints at the Better Business Bureau website that pertain to the vending machine business you might buy. Searching for any problems with this tool is completely free.
7. Research public court records for past, pending or current legal trouble.
Purchasing a vending machine business can cost a lot of money, and should not be undertaken without due diligence of any potential legal trouble it had in the past. Contact local and state clerks to access public records that pertain to the particular company. Look for judgments, liens and any past or present litigation processes that have been filed. If you go on to purchase a vending machine company anyway, you will become liable for any legal damages determined from these court proceedings. If you want to make a profit with an honest company, starting out with a troubled one is a bad idea.
8. Be sure to get a “Clearance Letter” for the company prior to purchase.
Many states will issue a “Clearance Letter” outlining any current or former taxes that have not yet been paid by the vending machine business you are considering for acquisition. Vending products do require sales tax payments in many places, and these must be remitted to the state government as necessary. This letter will give you a clear impression not only about how much sales tax is usually due every month or quarter but also whether any outstanding taxes may affect your bottom line when you buy the company.
9. Understand company value and stick to your budget.
After you have completed all the previously mentioned research and due diligence, it should be easier to decide if the vending machine business in question will be a profitable venture for you or not. If you do decide to go ahead with making an offer and potentially buying out the machines and routes, you need to know how much the company is worth altogether. Paying too much can be just as much of a mistake as buying the wrong business, to begin with.
Your best bet is to hire a lawyer who specializes in business acquisition and has some knowledge or experience dealing with vending businesses in particular. A professional accountant may also help to go over paperwork and determine value. If you would rather not employ outside help and figure out everything on your own, it might be a better idea to start by purchasing a smaller business with only one or two dozen vending machines already placed at active locations.
Making the first offer on a business purchase should always start at least 10 to 15% below your budget in order to leave room for negotiation. Always keep your maximum dollar amount in mind so you do not pay too much for a company or spend more money than you have access to. The negotiations should be carried out honestly and in good faith so both parties are satisfied with the end result.
10. Include transition help from the previous owner in the purchase.
Although many companies hand the reins over to the new owner immediately after the money is paid and paperwork is signed, it is a good idea to negotiate a transitional period with the sale. This means that the current owner would assist with all transition tasks for a period of a few weeks or even one month. This not only allows people new to the vending industry to learn the ropes from a seasoned professional but also allows even experienced vendors to learn more about the particular route and contracts in place. This time can include route optimization, machine maintenance assistance or education and introduction to key location managers and customers.
While these tips for finding and purchasing a good quality vending machine business do not cover all possible aspects, they provide a good starting point and valuable information on how to get the best value for your money and how to identify and acquire a business that already is and will remain profitable in the future.
As you can already see, using vending machine software to manage your operations, logistics and inventory can help you calculate and stick to the optimal route, optimize inventory, and keep customers happy by delivering the right products to the right machine before they get out of stock. What’s more, you’ll get a good look at the health of your vending machine business and be able to make well-informed, data-driven decisions with a rich up-to-date reporting system.
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