How to Start a Vending Machine Business: Step by Step Instructions and Common Mistakes

Pros of Starting a Vending Machine Business

There are many reasons that someone may be drawn to start a business with vending machines, such as:

• “Semi-Passive” Income – Vending machines are open essentially all hours, and you do not have to be present to make a sale. While you do have to put in some effort to make a profit,  owning a vending machine can be a relatively hands-off business. You will have to restock the machines, collect cash, and make other efforts to keep the business going.
• Flexible Hours – While you do have to restock the machines and do maintenance work, many vending machine owners are able to choose what hours they work. You can typically work around appointments or events. Depending on where your machines are located, you could restock early in the morning and then have the rest of the day to yourself.
• Freedom to Sell Different Products – Most vending machine operators get to choose what products they will stock in their machines. Most people think of vending machines for snacks or beverages, but you could also carry items like phone cases or personal care items.
• Ability to Scale Your Business at Your Own Pace – How much to grow your business and at what pace is up to you.

Cons of Operating a Vending Machine Business 

• Wear and Tear on Vehicle – Restocking machines can mean more mileage on your vehicle.
• Operating Costs – You will have the initial cost of the machine, inventory costs to restock, and fuel to drive to different locations. Depending on where you place your machines, you will also be paying location commission fees.
• Not a Hands-Free Business – While people may be drawn to vending machines as a passive income, they do take some effort to start and maintain. It is a business, and those looking to get into it should know the responsibilities that come with it.

How Much Does a Vending Machine Cost? 

Several factors can go into how much a vending machine will cost. These can include:

• The type of vending machine (machine category, such as snack, drink, or frozen)
• Features, such as touchscreens
• Whether the machine is used, refurbished, or new
• Size of the machine and capacity

Snack machines typically have the lowest median cost, while machines for frozen products or ice cream can run more expensive.

Before you purchase a machine, there are a few things that you should take care of first.

Step 1: Choose How You Will Structure Your Business Legally

In the U.S., there are several business structures you can choose. What business structure you have can affect your personal liability, the paperwork you need to file, and can also affect how much you will pay in taxes. When choosing a business structure, consulting with an accountant or attorney is often wise.

Sole Proprietorship

If you are doing business but have not registered as any other kind of business, you are automatically considered to be a sole proprietorship. Sole proprietorships do not separate business assets from personal assets. This means that you can be held personally liable for the debts and obligations of your business. If you think that your business idea is relatively low-risk, and you want to test the waters before forming a more formal business, you may consider a sole proprietorship.

Limited Liability Company (LLC)

An LLC can be owned by one or more people or entities, called members. One advantage of an LLC is that it offers members personal liability protection against the debts and obligations of the company, meaning that in most instances, your personal assets like your personal savings accounts or your home won’t be at risk if your LLC faces bankruptcy or lawsuits. If you have significant personal assets you would like to protect, or you feel like your business is at a higher risk, an LLC may be a wise choice.

Corporations 

A corporation can be owned by one or more persons or entities, called shareholders.  The potential advantages of corporations include protection of the shareholders’ personal assets from the debts and obligations of the corporation, as well as potentially the ability to raise revenue from outside investors by selling shares in the company.  However, there are certain formalities and tax considerations/implications that go along with forming your company as a corporation.

As the type of structure you choose for your company can have a significant impact on issues related to your personal liability, taxes, required paperwork and other formalities, it is always a good idea to consult with an experienced accountant and attorney so that you can make an informed choice.  

Step 2: File any Necessary Licenses and Permits

Obtain a business license and any permits that are required. A county clerk or city business office may provide an idea of what permits you may need. Depending on where you are operating your business, you may need a vending machine permit or license for each machine or location.

Step 3: Open a Business Bank Account

Opening a business bank account can help separate your personal finances from your business finances. If you are operating as a sole proprietor, this may not be legally required, but it does make keeping an eye on business expenses and cash flow easier.

If your business has started doing financial transactions, it may be time to open a business bank account.

You may need certain documents to open a business bank account, such as a copy of your IRS-issued tax identification number (TIN) or employer identification number (EIN).

Step 4: Scout A Location & Buy a Machine  

Many entrepreneurs ask which comes first, buying the vending machine or securing the location?

Different locations may have different requirements for machines, such as:

• Size – Measure not only the footprint where the machine will sit, but also any doorways it will have to travel through in order to get there. Also leave enough room so that there will be space when you open the door to the machine to restock.
• Electrical Access – A three-pronged electrical outlet is needed for a lot of machines.
• Security – Look for a regularly patrolled or fairly public area where the machine has less of a chance of being vandalized.  
  ADA compliance
• Permits

Because of this, many vending machine business owners opt to secure a location first before purchasing a machine.

How to Choose a Location for a Vending Machine  

There are some things to look for when choosing a vending machine location. These can include:

• Places with high foot traffic
• Locations where people will be waiting
• Locations with good visibility

Some common Places vending machines are placed are:

• Laundromats
• Shopping Malls
• Car Dealerships
• Universities, colleges
• Gyms
• Hotels
• Apartment buildings

Vending Machine Contracts

Of course you will need a clearly written contract with permission from a property owner before you go plugging in a machine anywhere. This should include things like:

• Commission terms
• Insurance coverages required
• Who handles maintenance of the machine
• How either party can end the agreement
• The duration of the agreement, and renewal terms, if applicable

Some business owners, like shopping malls, will likely already have premade placement agreements or leases. Regardless of whether the business is providing the contract, or you are as the owner of the machine, you should review applicable laws and consult with a qualified attorney before signing.

How Much Does Insurance for Vending Machines Cost?

Wondering how much it may cost for insurance for a vending machine business? The answer can vary based on:

• The coverages you choose
• What products your machines offer
• How many machines you have

It should be noted that items such as tobacco products may not be covered in a typical vending business insurance policy. You should always review your coverage with an agent to see what is and is not included.

Vending Machine Business Insurance Quotes

To get a picture of what it could cost to insure your vending machine business, reach out to our insurance agency and request a quote. Starting the process is as simple as filling out our form here, or you can give us a call. From there, an insurance professional will connect with you to gather more information on your business.

Mistakes Vending Machine Businesses Make

• Purchasing a Machine Before Securing a Location – Different locations may have different size or other requirements.
• Not Doing Research Before Selecting a Location – You need to know how much foot traffic a location typically will get, as well as what your competition looks like.
• Not Accounting for Card Processing Fees – When setting your product prices, take into account all expenses, including card processing fees.
• Stocking Only What You Like – It’s important to look at the data of what is selling and make ordering decisions based off what your top sellers are. Try to offer some diversity when you are stocking. If you can, talk to management of where your machines are located to see if people are leaving feedback for what they would like to see in the machines.
• Not Regularly Maintaining Machines – Without a regular schedule, small problems can turn into larger ones.

 

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This article is for general informational purposes only and is not to be relied upon or used for any particular purpose. Cross Insurance shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, insurance, accounting or other professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article are that of its author and do not necessarily represent the views of Cross Financial Corp. and its subsidiaries and affiliates (“Cross Insurance”) or Cross Insurance’s management or shareholders.