I’ve heard a lot of great things about the vending business. It’s a cash business. The profit margins can be unreal. I had read books on it several years ago and thought it would be a great business to get involved in, but at the time, my life took another direction.

Lately, I have been looking for a passive income or semi-passive income business to buy. First, I was looking at laundromats. Over the past 6 months, I have looked at a half a dozen laundromats. Laundromats are also a great business that I have researched a lot and read a lot about. I put this “book knowledge” to the test when I got out there and made offers to purchase and analyzed laundromats that I was looking at. The thing about any cash business is that the income is usually not reported but instead is spent or put under the mattress. People trying to sell laundromats apparently use this as an excuse to brag about all the unreported cash the business generates. Of course, there is usually no way of verifying this. Or is there?

When analyzing a laundromat, I will ask for 3 years of tax returns. These usually don’t exist or are inaccurate. I will ask for 3 years of water bills. After taking a complete inventory of all the equipment, I contact the equipment manufacturers to find out how much water each machine uses. I developed a spreadsheet that will calculate the amount of income from the washing machines given the number of gallons per wash and the vend price. The dryer income can be estimated fairly closely given the wash income.

I came very close to purchasing a particular laundromat, but the sellers were slow on getting me the water bills and all the final financials. The deal had been under agreement for several months without this information being provided. When the information was finally provided, I was put under pressure to close the deal immediately and the broker tried to rush me. He called my lawyer and set a closing date for later that week even though I specifically told him that I needed more time. I started to get very suspicious and had a feeling that I was being scammed. The financial picture from the bookkeeper did not look good at all. The seller had told me that the business was making substantially more money than his bookkeeper had recored. After looking at the water bills, the truth was that the business wasn’t even making enough money to pay the employees and rent. It was running at a loss each month! I confronted the broker about the situation. He admitted to knowing the business was running at a loss, but tried to convince me to buy it anyway. I didn’t walk away… I ran.

After running into a few situations similar to this, I got a bit disenchanted with laundromats. Yes, they are a cash business and they can be lucrative, but all of the sellers I dealt with lied to me and the businesses were not really making much money, if any. Most of this was due to bad management and could be turned around, but I wasn’t going to pay a premium for that. I told one laundromat seller that I would be willing to assume the liability of his business and take it over for nothing, but it wasn’t actually worth any money. He was offended. That was more than 6 months ago and he hasn’t had any other buyers.

I started to look seriously at vending, particularly bulk candy (gumball and candy machines). The profit margin in bulk candy is generally about 80% which is totally awesome. Gumballs are the best. You can buy 3 lbs of small gumballs at BJs for $5. With a typical machine, they will sell for $8 per lb, or $24. Not bad!

For the past couple weeks, I’ve been obsessed with researching bulk candy vending and looking at business classifieds, to the point of not responding to email or returning non-critical phone calls. Sorry if I ignored you, don’t take it personally. I’m a man on a mission.

I’m happy to report that a couple days ago, I bought a vending business consisting of 41 triple-head candy machines. The business has been poorly managed and needs someone with the skills to turn it around. Many of the machines are in under-performing locations and will need to be re-located to higher traffic areas.

My plan is to get all the machines properly located and generating at least $1000 per month. Once my goal is met, the business will require very little ongoing maintenance of only 2-3 days per month. We’ll see how it goes. I am already daydreaming of buying more machines to expand the business or other vending businesses after this one is doing well.

photo credit gumball machines: rick
photo credit laundromat: mfshadow

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Tags: Business, laundromat, passive income, vending

This entry was posted on Sunday, May 11th, 2008 at 1:23 am and is filed under Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.