Let's take a look inside a vending machine business

Hey Side Hustler,

Let’s take a look inside a side hustle that has fascinated me for years: vending machines.

I found a company for sale and got the inside scoop.

Here are the bullets:

• Price $299k

• Revenue $158k

• Seller’s discretionary income (SDE) $66k

• Machines and inventory included: $125k

• January ‘24 sales up 20% over Jan ‘23

From the memo:

State-of-the-Art Machines: All 13 machines are newer models with digital features, providing owners with instant visibility into the performance of each unit. All less than 2 years old. Benefit from the convenience of real-time monitoring of sales, cash, and inventory through the digital interface, allowing for efficient management from anywhere.

Premium Placements: Strategic placement of machines in high-traffic areas ensures a steady stream of customers and maximizes revenue potential.•

Minimal Time Investment: With only 20 hours per week on average required to manage and maintain the business, this opportunity is perfect for individuals seeking a lucrative side hustle or young entrepreneurs looking to enter the business world. Hours (and sales) typically peak in the summer and lessen in the colder months…but 20 hours per week is the average across the entire year.

Expansion Capability: The business comes with the potential for expansion, allowing the new owner to scale operations and increase profits.

Ideal for: Individuals or a family seeking a part-time business venture with a steady income stream. Entrepreneurs looking for a low-risk investment with high potential returns. Those interested in the vending industry with a passion for automation and technology. A young or budding entrepreneur looking to acquire their first business.

Looks pretty good to me, here’s my take:

• The multiple is a little too high. The seller is selling the cash flow at about 3x AND THEN the equipment and inventory on top of it. For deals this small, in my opinion, it doesn’t work like that. The inventory and the machines ARE the business, especially if the buyer has to then provide the labor. This should sell for $200k, you’re selling a part-time job.

• They are also adding back in vehicle expenses and repairs to the SDE, at about $3k. I don’t think that’s right, you’ll have to use a vehicle to stock the machines. That is absolutely a business expense.

So if it truly makes $60k- ish, I think $200k is a solid number, $180k makes it a done deal for me.

Now, what would we do to grow this thing and blow it up? Here we go:

• First up, outsource stocking. You don’t want to spend Saturday morning huckin’ Fritos, neither do I. Let’s take an unusual approach. Jump on the app TaskRabbit and get someone do it for you for a couple Saturdays. They’ll have to have a car to be on the app and they’ll have ratings so you know they’re good at something. Repeat until you find someone great and reliable. Then propose that they ditch the Rabbit app and work for you directly. Steady, reliable income for them; steady, reliable labor for you. Boom.

• Then, COGS reduction and optimization. What sells really well? Are there knockoff versions that you can reduce your COGS on and maybe even reduce the customer’s price a bit on? Do the 80/20 here. 20% of the stock accounts for 80% of the sales. Load up on this stuff and ditch the losers. Raise the prices 10% if possible. People won’t notice.

• Ask your current clients if you can add more machines. Pop, water, condoms(??) what do ya need? We can get it. I’ve read Monster Energy (🤮) sells like crazy. Cold-brewed coffee?

• Find more locations. Ask your TaskRabbiteer to find more locations. Bonus them $100 for every new machine they place. Gyms, schools, colleges, factories, warehouses, apartment buildings, and more LOVE these machines. Find em.

Let’s not forget the sweet tax benefits of this business. If the machines are $120k, you could write off 60% of that this as bonus depreciation. That’s a $72k write-off. AND it looks like 100% BD is coming back. That means you could owe ZERO tax year one and shelter some of your primary income too. Juicy junior, reaaaall juicy.

Then a ton of your income is in cash! I guess that doesn’t matter too much since you’re going to report all that income right?

And the machines track the cash so your stocker/runner can’t steal from you (for long anyway).

So I like this one, I want a route in my town now.

What do you think? What am I missing?

Car Wash Guy Kriss

PS: make sure you check out my FAVORITE side hustle in this video right here.