Posted on: November 18, 2021 |
If you’ve seen success with your first vending machine, or your first set of vending machines, you may be wondering if it’s time to expand your vending business. This is a big decision, and you may have some concerns. Is it wise to make another investment? How do you know if these vending machines will be as successful as the previous ones? If you’re wondering about investing in more vending machines and expanding your business, here are a few questions to ask first.
Is it Time to Expand Your Vending Business? 5 Questions to Ask First
1. Do You Have the Funds to Invest?
This is perhaps the most important question to ask when deciding whether or not to expand your vending business, or any business. If you’ve already made significant investments elsewhere, it may be wise to save up for a time before making another investment. If you’ve recently sold other investments, you’ve inherited money, or you’ve been saving up and you have cash to invest, this can be a good time.
2. Can You Cover the Investment?
If you are taking out a loan to invest in another vending machine, consider how much debt you are comfortable with. While taking on some debt can be an avenue to growing your business over time, you don’t want to overextend yourself or your business. First and foremost, take careful note of your average monthly and annual income, and compare them with your regular living expenses, as well as your current payments. If you’re uncertain if you can cover additional monthly expenses, it’s probably not a good time to invest.
Another metric to consider is the debt ratio of your company. Your company’s debt ratio is its total liabilities or debts divided by total assets. This is a metric that investors use to measure the health of a business. A debt ratio of about 0.4 is generally acceptable, while a debt ratio above 0.6 is considered high. Calculate your assets and liabilities to determine your debt ratio, and decide whether or not it’s a good time to expand your vending business and buy another machine.
Leveraging Equity and Depreciation to Cover Investment
One way to expand your vending business and to keep from overextending your resources is to leverage the equity in your first vending machine. Once you’ve paid down your first unit, you can use the equity in the machine to lower the debt ratio and reduce risk. With a history of successful business ownership and a loan backed by equity in your machine, you’ll be able to get better loan terms and lower your overall debt ratio.
You can also use some tax laws to your advantage and help to finance a new machine. Section 179 of the Federal Tax Code is designed to encourage business owners to purchase new equipment and expand their business by reducing their taxes. Section 179 concerns depreciation and how this is addressed on taxes. Business assets lose value over time, and businesses can subtract this loss from their revenue, and pay less taxes. Using Section 179, you can deduct the overall depreciation of the machine at one time, instead of depreciating the investment over a number of years. This will allow you to reduce your taxes substantially, making a new machine less expensive. There are some important details involved in using Section 179 to your advantage, so you’ll want to speak with your account or another tax professional before using this option to expand your vending business.
3. Do You Have Time to Maintain Another Machine?
All vending machines require some maintenance. Snack and soda vending machines require regular restocking, as well as other maintenance considerations, such as cleaning and repairs. Ice and water vending machines don’t require restocking, but do require cleaning and maintenance.
Before you expand your vending machine business and take on another machine, ask yourself if you have time for maintenance and repairs on another machine. Are your current machines in full working order most of the time? Or does it take you a few days to make the necessary repairs or maintenance? If you have a comfortable routine and space to add another machine to your routine, it may be a good idea to expand your vending machine business and add another machine.
Expanding and Hiring
If you don’t have the time or energy to maintain another machine, but your business is successful and you are confident in expanding it, you might also consider hiring a full- or part-time employee to help. The more machines you have, the more helpful an employee will be. When you hand off more maintenance and repair responsibilities to your employee, you’ll have more free time, or you’ll have more time to continue investing.
If you are considering a partnership with another vending machine owner or entrepreneur, you can divide maintenance and repairs while also dividing the costs of a new machine. This can make expanding your vending business even easier, though it’s important to have a firm business partnership agreement beforehand. If you are considering selling your business at some point in the future, or leaving your business to a family member, this might also be an opportunity to get the help you need while planning succession or retirement.
4. Are Your Current Machines Successful?
As with any business, it can take some time for customers to notice your machines and integrate them into their own routines. When you have regularly returning customers and a steady stream of buyers in general, your machines are likely to be profitable. However, if your current machines are new to the area, they look old or run-down, or they’re not placed in an area with a lot of traffic, they might not be making the money that you expect. If those situations sound familiar to you, consider the following before investing in a new machine:
- You just added a new machine: If you’ve just added a vending machine to an area, you might not have a lot of sales yet. Customers need time to notice the machine, and realize its convenience.
- Your machine isn’t in the best shape: Old or run-down machines might not be communicating quality, and customers might avoid the machine. Consider revitalizing your machine instead of investing in a new one.
- Traffic isn’t what you expect: If traffic patterns have changed—perhaps a nearby business closed or a new highway rerouted traffic—you might be better off moving your current machine to a new location instead of investing in a new one.
5. Do You Have a Location in Mind?
Location is one of the most important factors when it comes to owning a successful vending machine. If you think it’s time to expand your vending business and buy a new machine, but you aren’t sure about a location, consider this carefully. However, if you already know of a busy location where a vending machine is likely to perform well, it may be in your best interest to purchase and place one before a competitor does.
When considering your location, make sure your type of vending machine makes sense. Ice and water vending machines work best near busy roads when placed near other businesses, such as convenience stores, car washes, or gas stations. Snack food vending might be ideal for waiting rooms, lunch rooms, or lobbies. Health food vending might be a perfect fit for gyms, spas, or schools. With the right combination of location and machine, you’ll set your machine up for success.
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