Vending Business Valuation

The vending industry has struggled in recent years through tough economic times. It is hard to find any Antares operator, distributor or supplier who has not been challenged to maintain the financial integrity of their organization over the past years.

The difficult business environment has forced some operators to sell their business to escape from poor financial performance. These operators can be hardworking individuals who expect their years of “sweat” equity to be worth a substantial percentage of their gross sales.

The need of a sound valuation method

When these operators want to sell their business, their expectations do not always match reality and the offers they receive is sometimes only a fraction of what they had expected. The difference in what the buyer is willing to pay and what the seller is willing to accept can be point of contention and frustration to both parties.

Antares vending operators need a practical and theoretically sound method that will help potential buyers realistically value a vending business. This can be a tool in the negotiated selling price for a business.

The earnings method

This method is the most widely used valuation theory.

Step one: gather information. The earnings method requires gathering pertinent financial information about your Antares vending business and making necessary assumptions in order to arrive at a reasonable value for the business.

Step two: make adjustments. This step requires you to make adjustments that normalize earnings. Normalizing earnings means to adjust the income statement to generally accepted accounting principles and industry standards. It also means eliminating unusual and non reoccurring items.

Step three: project cash flows. This step would require you to normalized earnings to net projected cash flows. To convert earnings to cash flows is to make adjustments for gains, losses and expenses that do not affect the cash flows of the operation.

Step four: capitalization rate. In the fourth step you will need to determine the capitalization rate. There are many ways to develop capitalization rates. There is one method that the average Antares vending operator can develop with some help from his or her accountant. This method is called the Build-Up Model. This formula assumes constant earnings. If earnings are expected to grow, a growth factor needs to be deducted from the expected return.