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Old 08-12-2010, 10:36 AM   #1
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New Business

A couple years ago I explored purchasing a delivery route. (bread franchise) Well, recently I have moved closer in perhaps moving forward with this venture.

Here's my background followed by question:

-Single, 42 years old w/ no children.
- Want to get out of IT sales. (self-employed)
- Current portfolio consists of roughly 535K in taxable accounts, 310K in IRA'S, house paid off. (valued @ roughly 300K)

The bread route would cost me roughly 200K with a current estimated weekly income of 2K. (plenty of room for route growth/income as it is presently owned/operated by an older woman who just can't do it much longer. (she's 60)

This is a franchise and naturally I can sell it down the road for hopefully more than I paid for it. I plan on keeping it for a while, however, to at least grow it.

A buddy of mine owns a bread route from this same franchise and enjoys it. I have traveled with him a few times on his route and know I can do it.

Here's my question:

Am I missing something here? Would it be worth it to liquidate some of my investments to pursue this? I did some initial research and apparently banks frown on lending to route buyers. If all went well or at least average, I could have the route fully paid off in a few years.

I hope I provided enough information to warrant some feedback?

Thanks for any and all responses.

Space Mountain
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Old 08-12-2010, 10:51 AM   #2
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Originally Posted by Space Mountain View Post
I did some initial research and apparently banks frown on lending to route buyers.
Why? Answering this might question might be informative.
Is the 2K/wk net income to you?
Will the current owner hold a note?
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Old 08-12-2010, 11:01 AM   #3
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Why? Answering this might question might be informative.
Is the 2K/wk net income to you?
Will the current owner hold a note?

Dex- Per my research, if a route owner defaults on the bank loan, the banks feel they have no recourse and don't want to be left with a route. That's the explanation I got.

- The 2K would be net to me. Sorry, I should've clarified that.

- The owner wants CASH for route......IN FULL. Having her hold the note is something I plan on negotiating.

Thanks, Dex!

Space Mountain
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Old 08-12-2010, 11:07 AM   #4
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Did you obtain a cash analysis of the last 5 years from the lady to see what NET cash flows she got? $2000 a week is not much if the truck needs $200 in gas, you have to pay a route driver, insurance, liability insurance maintenance, royalty fees, etc..........
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Old 08-12-2010, 11:13 AM   #5
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How much time does the route take up (on average) per week?
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Old 08-12-2010, 11:20 AM   #6
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Did you obtain a cash analysis of the last 5 years from the lady to see what NET cash flows she got? $2000 a week is not much if the truck needs $200 in gas, you have to pay a route driver, insurance, liability insurance maintenance, royalty fees, etc..........

2000K is NET after ALL expenses. Again, there is ENORMOUS upside in terms of servicing more stores which should make the net @ 3000K per week in due time.

Thanks, Finance Dude!

SM
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Old 08-12-2010, 11:22 AM   #7
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How much time does the route take up (on average) per week?

Up at 4AM and home by 1-2 PM on most days. Some are earlier than others.

5 days per week. Gotta work Saturdays, however. No biggie.

Thanks, Carnage.

SM
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Old 08-12-2010, 11:42 AM   #8
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Originally Posted by Space Mountain View Post
2000K is NET after ALL expenses. Again, there is ENORMOUS upside in terms of servicing more stores which should make the net @ 3000K per week in due time.

Thanks, Finance Dude!

SM
I can not add much to your analysis and I don't know the 'route business'. In a way the number seem too good.
Cost $200K for a return of $104/yr. 52% return

Have you spoken with the stores you think you could expand into? They are selling bread now and getting shelf space away from others might be challenging.
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Old 08-12-2010, 11:43 AM   #9
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hmmm...i assume you looked over the accounting books of the business you are going to buy??

how much time per week to you plan to spend on the "business" side of things (accounting)?

with an undiscounted payoff in under 2 years and that kind of cash, i don't know why there aren't more people jumping at the opportunity.
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Old 08-12-2010, 12:26 PM   #10
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Have you spoken with the stores you think you could expand into? They are selling bread now and getting shelf space away from others might be challenging.
Or look at from another vantage point: what makes you think those other route owners aren't thinking of expanding into *your* space?

Quote:
I can not add much to your analysis and I don't know the 'route business'. In a way the number seem too good.
Cost $200K for a return of $104/yr. 52% return
Not exactly, as it isn't a passive investment. Subtract a salary for your time, and then maybe look at the return on the investment after that.

-ERD50
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Old 08-12-2010, 12:31 PM   #11
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The bread route would cost me roughly 200K with a current estimated weekly income of 2K.
What is this income? Your gross margin? Your gross margin less your gasoline? Or GAAP earnings, after D&A, etc?

Is the truck included in the $200,000? Is it relatively new and in good repair? Do you have any warehouse costs or do you pick up your merchandise each morning?

Depending on these details, you might have a very good opportunity, if you are looking for a medium level "bought job".

One nagging question I would have is that unless this woman is wealthy (unlikely) and just wants out, she must have a niece or nephew or son or daughter
or grandchild who would be interested in an arrangement that lets her keep an ownership interest and the much better cash flow than she will ever get from re-investing the $200,000 at O-B rates. Beware of hidden (to you but not to her) bumps in the road ahead.

Ha
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Old 08-12-2010, 01:09 PM   #12
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How about running the route with her for a couple days, then working the route all by yourself for a week or so while she takes a vacation. You are likely to learn a lot more about how viable the business really is.
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Old 08-12-2010, 01:22 PM   #13
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Might be worth comparing what you're talking about to what you're currently doing. You would be working roughly 50 hours per week. If you assume no value change in the route (i.e. can sell for $200k) you are paying $200k for the opportunity to work for $40/hour ($2000/50hrs/wk). Assume that you are otherwise earning 5% (for argument sake) on your $200k, you would be receiving $10k per year on it. Discount your earnings for return, and you're basically getting your 5% return plus being allowed to work for aobut $36.15 per hour. Not a bad wage, but includes no benefits (if you work for youself, this is probably comparable). Compared to a contractor's wage with charges for benefits build in (unless you've included those costs before your $2k/wk number that is), that's pretty low. If you ENJOY the new job, however, and it's more like a retirement career for fun more than profit, this might still make sense. Just be sure what you're comparing. (for comparison, if you can get it up to $3k/wk, hourly wage would be about $56.15, a much more acceptable rate of pay)
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Old 08-12-2010, 06:49 PM   #14
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Based on the above I feel you will be paying too much for this bread route. The current operator probably doesn't have a lineup of folks waving money to buy it so you want to get it as cheap as possible.

Look at the truck, assume the worst.. that you will need to replace it the month after you buy the route. What would it cost tricked out just like the current truck? How much per month to pay it off. That plus the amount you pay the route holder is your capital investment.

Add the cost of insurance on the vehicle and the cost of maintenance and fuel for the route (the latter increasing say 5% ann, compounded). Now add the cost of heath care for you and your family, disability insurance for you (you won't be covered by workers compensation). Deduct depreciation on the vehicle because you will need to set aside reserves for its replacement. What is left is, roughly, your 'profit' upon which you will pay both sides of social security and medicare.

Divide that by your hours of work.

Now, could you hire someone at that rate less 25% for supervision, in your market (boost those hours of work by adding 1.5 for those hours over 40)?

The money left over is the return on your investment.

Frankly I would hire an accountant to value this business after ascertaining the costs I mention. At a minimum I would ask the seller for a copy of the last three years tax returns for the business for the CPA to review.

If this is a true franchise then the franchise owner could just pull the franchise out from under you or the nature of the market could change making bread routes not viable... I remember Milk Men (dates me), and the Ice Man (oh yes, and the ice box). Don't think that couldn't happen to you.
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Old 08-13-2010, 12:06 AM   #15
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the nature of the market could change making bread routes not viable...
In this case, how will Stop 'n Robs get their bread? In the non-government world there is always risk, but a bread route sounds pretty basic, unless you think suddenly no one will have to run down to the strip mall and get some hamburger buns?
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Old 08-13-2010, 09:01 PM   #17
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And there is almost always more and tougher competition than what you expected. But I know little about the bread route business specifically.

Good luck if you decide to go through with it though.
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