Starting A Vending Business

July 2, 2017




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Starting A Vending Business

 

What My Vending Business Taught Me About the Dangers of Investing Money in Physical Equipment

Will your business require large amounts of capital investment in equipment or machinery?

My vending business was a capital intensive business. Almost all of the money I invested went toward purchasing the physical equipment necessary to operate the business. I essentially locked up $28,000 in machines that, like automobiles, began to depreciate from the moment I bought them.




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Money you invest in hard goods is not liquid… it’s not easily accessible. Once I started my vending business, I couldn’t just swap my machines for cash, or pull the equity out of them in the form of a loan. The money I had invested was “stuck” inside the machines!

Of course the machines produced a little trickle of cash every week, but it was nothing compared to what I had invested. And, to add insult to injury, that trickle of money stopped if I didn’t service my routes once or twice a week. I had to be there to make money.

If at all possible, avoid starting businesses that require large investments in equipment or machinery. You have better things you can do with your money than sinking it into hard goods that will quickly lose value.

Investing your hard-earned money into equipment or machinery will likely violate the rule I gave you in the answer to question number 2 (never invest more than $5000 to start a business). But also consider this. What would happen if you went out of business?

Let’s again look at my vending business. I hadn’t done adequate research into the cost of vending machines, so I paid far too much for mine. In addition, I took out a loan to finance the purchase. When I went out of business I was able to make the loan payments, but I wanted to get rid of those vending machines… and fast!

I thought to myself, “It won’t be too bad. I’ll just sell the vending machines for $20,000 and suffer an $8000 loss. Heck, I’ll even sell them for $15,000 if I have to. That’s nearly half off, but it’s worth it to me.”

Imagine my shock when I discovered people selling vending machines online at eBay and other second-hand vending equipment web sites for $1500 and less. Some vending machines were selling for mere hundreds of dollars!

I quickly ran the numbers in my head. If I could command top dollar for my vending machines ($1500 per unit), then the very best I could do was $7500. I was emotionally crushed. I had just begun to realize the severity of my ill-informed decision to go into the vending business.

Nevertheless, I decided to make the best of it and see what I could do on eBay. I paid for a listing, wrote a great sales letter, and waited for the offers to come in. But nobody ever made a single offer.

I eventually found a guy who lived only 15 miles to the south of where I live who was willing to purchase all of my machines… for a meager $2500. Do you know what? At that point I was happy to sell them for that much. The vending machines had been a financial millstone around my neck, and I was thrilled just to get rid of them.

I lost $25,500 on the vending machines alone. That doesn’t count the operating expenses I incurred during my year of business, or the time I invested.

Now you might be tempted to say, “Yeah. Well I bet you got a good tax write-off for that business loss.” And I’d respond with the sage advice of my CPA: “A business loss is the last kind of tax deduction you want.”

The moral of the story is this: Never, never, never invest your money into a lot of physical equipment when you first start a business.

Some types of business will always require large investments in equipment. Some of them may even be profitable businesses that have proven their ability to succeed. Even so, avoid those businesses if you can, at least at the beginning.

I realize my advice may not deter you, so if your business requires you to purchase some equipment and you’re dead set on moving forward with your business idea, then answer these two questions before you buy anything:

Are you confident you’re getting the best price possible?

Can you save substantial sums of money by purchasing your equipment second-hand?

Answer these two questions before you purchase any machinery or equipment and you could save yourself thousands, if not tens of thousands, of dollars.

Next up: The First Step in Making Sure Your New Business Will Make You Wealthy




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