The Vending Authority

I have been often asked what kind of licenses or permits does a person need when starting their own vending machine business. Vending is not your typical business since you could have locations or “stores” in several towns, cities or even states/provinces and because of this, many government agencies don’t know what to tell you when inquire as to what licenses you need. A lot of what is discussed here can and will vary between states/provinces so I would definitely check with your local small business association or Board Of Trade to verify everything first.

There are 3 main levels to consider for various licensing requirements.

Federal - Nothing is required by law at this level for either the US or Canada other than reporting the income from your business each year. In the United States, you may want to setup a separate business entity and obtain a separate EIN for your vending business. In Canada, you will need a GST number and if you’re looking to incorporate you can do it either Federally or Provincially with different advantages cell free phone ringtones verizon wireless | ringtones for prepaid phone | free sprint pcs ringtones | cell phone ringtones and wallpaper | download free ringtones virgin mobile | gratis ringtones | download free cricket ringtones | bollywood free ringtones | cheap mobile ringtones virgin | 24 ringtones show tv | download free cricket ringtones | free cell phone ringtones | free mp3 ringtones converter | free music real ringtones | 2366i nokia ringtones | cingular ringtones spainsh | make your own free ringtones | crazy download free frog ringtones | free real ringtones | e315 motorola ringtones | and disadvantages of each which we can discuss in more details at a later date.

State/Provincial - If you live in a state/province that has a sales tax you may be required to pay sales tax on all or part of the vending revenue. You will also be required to pay any fees relating to the entity you chose (for example corporate tax) and of course income tax on revenue you collect (assuming your state/province has an income tax). If you keep good records on what you sell, and have it itemized, you can usually get a break on some of the tax owed. Many states/provinces have different sales tax rates of different goods. For example, in Ontario, some healthier choices that you see in vending machines such as granola bars, or nuts are sales tax free. Therefore, if you keep good records, you only have to submit sales tax for those goods which are taxable. You can get a list of the various tax rates from your state/provincial office when you register for your tax number.

Town/County - If you have a business you are probably required to have a local business license. Additionally, since you are in the food service industry many towns/county’s you have a machines in may require an annual fee per machine.
Since vending is usually a cash only business many operators are tempted to run their business “under the table” without any licenses or reporting any income. I would strongly discourage this. Not only does it make it more difficult to obtain financing if you need it, sell your route when the time comes, or even sleep at night, I find it’s just not worth the trouble. There are so many write-offs you can generate (machine depreciation, vehicle expenses, home office, supplies, etc.) when running the business above board and legal that can offset the tax you might have to pay, that the headache of running your business in the dark isn’t worth the few hundred dollars you might save. Also, if you’re running your business “under the table” you can’t apply or receive any business/liability insurance on it which is a must have in this litigation happy day and age.

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A new study out of the United Kingdom suggests that the consumption of soft drinks among children is not linked to obesity later in life, challenging previous studies that have targeted soft drink manufacturers and vending machine operators as a major driver in the epidemic that childhood obesity is becoming.

The research used data from a sample of the Avon Longitudinal Study of Parents and Children, and found that consumption of soft drinks during childhood was not associated with fatness at later ages in childhood.

It’s nice to see studies like this start to emerge after all the negative press the vending industry has received over the past year, trying to blame it for today’s overweight children.  Although I would be the first to admit that a Coke, Pepsi, bag of potato chips or a chocolate bar isn’t exactly the best choice for a children’s snack, taken in moderation they pose no harm.  Sitting in front of the Playstation 3 or XBox for 5 or 6 hours a day while getting no exercise is certainly more harmful.  Instead of trying to get rid of vending machines in schools, maybe we should be concentrating more on getting the kids outside and active!

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Anyone who wants to get into the vending machine business needs to learn one thing very fast, there are alot of dishonest scam artists out there looking to part you from your money.  These are commonly referred to as “biz-ops” because they are usually presented to you as a “business opportunity”.  These people want to sell you a pre-packaged “turn-key” soloution to help you on your way to vending riches. 

Anybody you contact who promises to help you locate your machines, or will include a locator as part of the price of the machines should be looked upon suspiciously.  They will usually try to get you to buy a minimum of 5 to 10 machines on your initial purchase.  The reason they do this is they know you once you figure out their scam, you will never be back to buy more, so they need to maximize the revenue they get from you right away.  Their scam usually involves overpriced combo machines, but I have heard of them getting involved in other types of machines as well.  They will try and sell you these machines for $10,000 or more each.  These machines in fact can be purchased from any reputable vending machine distributor, brand new for around $4,000 or less.  They will tell you (and in many times “guarantee”) that you will make thousands of dollars in profit each month from just one location and that these locations are either included in the price, or for a small bit more, you can pay a locator to get you great locations.  This is another lie.  Most people will never have a locator contact them once they’ve paid the money and those lucky few that do usually end up with substandard locations where it would be impossible to make even a few dollars profit.

Unfortunately, once you have fallen prey to once of these characters, you have little recourse.  They move around, closing down one operation while setting up another on a regular basis.  In the United States, many local and state Better Business Bureau’s or the State’s Attorney General’s office will have records on them but have little power to do anything.  In these cases an ounce of prevention really is worth a pound of cure and knowing what to look for to avoid them in the first place is of course the best plan of action.

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The amount of commission to offer a location is always a touchy subject. Many operators new to the business struggle with what amount they should offer a location. Obviously, your first choice should be not to give anything. If you have a bulk vending route and use a charity, you can easily try and explain that rather than paying a commission, the money is going to help the charity you’ve chosen and the business owner is doing a good deed by allowing your machine on his/her premises. If you’re doing snack and soda vending, you could talk about the many benefits having your machines on site provides to the business owner, such as saving employee time by having them visit one of your machines rather than leaving the premises.

However, sooner or later, you will get a prospect who is intent on having a cut. The last thing you want to do is get in a bidding war with a competitor over who will give the location a larger percentage. Admittedly, my technique is geared more for snack and soda operators than bulk vendors, but I’m sure it could be applied to either. It was explained to me by an operator who has over 25 years experience and is the only way he deals with commissions.

Rather than quote a direct percentage cut, I will explain the process of calculating the commission based on percentage to the prospect and emphasize the many problems that can occur. Be sure they know to compare apples to apples when comparing commission offers from two or more different vendors. For example, are they quoting the percentage based on sales or profit? If it’s profit, is the operator simply deducting the cost of goods sold, or is the vendor also deducting his cost for gas, his/her time, machine depreciation, etc. Obviously these could all yield very different numbers. Finally, the question of trust enters into the equation. How does the prospect know the sales numbers the vendor is telling them are accurate?

Instead of getting into all the trouble above, I offer to have my machines put in free of charge, for one month, with no obligations. At the end of the month, (now knowing what sales are like and whether it’s a good location or not) I will offer them a flat monthly commission which I feel is fair based on sales (say $150 per month). If the location agrees it’s a fair price (which so far they have in 100% of the instances where I’ve used this approach), the machines stay, if they location disagrees with my offer, I will remove the machines, again at no cost to them, and they can replace them with another vendor of their choice who might pay them more.

This approach saves you from getting in a bidding war with another vendor which we all know might be fudging his numbers, it builds trust with the location since they don’t have to worry about whether the sales you’re reporting are correct, and it also allows them to budget the commissions. Many locations use the commissions as a way to fund social events/committees and with a flat monthly rate, they will know exactly how much they will receive over the course of the year and can spend it accordingly, rather than taking a wait-and-see approach to planning their next event. It’s a win-win for everyone, and that’s what closes accounts.

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Like it or not, if you want to start your own vending business, you’re going to have to learn how to sell.  The single most important skill you need to develop if you want to succeed in the vending business is to be able to find your own vending locations.  I can’t count the number of times that someone has called me, asking for advice on how to get started in the vending business, and their questions revolve around whether they should do bulk or snack/soda vending, should they buy new or used machines, which machines are the best to get and where is it best to buy them from?  My first question back to them is always, “how do you plan on getting locations”?

 Locations are the lifeblood of your business.  The problem is you never know how well a location will do until you actually place a machine in it.  I’ve had locations which I thought would do great, with over 120 employees in it do absolutely terrible and other locations with 35 employees which I thought would be marginal at best become one of my top 5 sites.  Alot of people new to the business figure they can just hire a locator to find locations for them.  The problem with this is that it is a very expensive way to build your business and a good locator is harder to find than a four leaf clover.  I have never met a person who has had success in the vending machine business who hasn’t found locations on their own, I’m sure there are some out there, they are just few and far between.

 But what if I’m not a super outgoing person or like the car dealer down the street, am I doomed?  The answer is a resounding NO.  Just like everyone has a different way to make chili, there are hundreds of different ways to find locations, just don’t be afraid to try.  Like in any industry, getting a new sale involves getting alot of “no’s”, just remember that every “no” brings you that much closer to a “yes”, it’s all a numbers game.  Don’t like cold calling people on the phone, fine, send out some flyers.  Don’t have a budget to print a few hundred flyers, fine, create a website.  I’ll discuss more ways to get locations both here and in the forum, but the biggest hurdle is conquering your fear and taking action, any action.

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