You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your vending machine business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a vending machine business?
The startup costs for a vending business are manageable. It’s possible to start a business for a few thousand dollars, and a small business might be started with less than $1,000. Business owners must purchase a vehicle, equipment (vending machines), and supplies (items machines sell).
To save on vehicle expenses, many business owners start out using their own vehicle. As a business grows, a larger vehicle that can hold more supplies may be needed. Such a vehicle can be purchased once the business brings in sufficient revenue.
Vending machines vary in cost from a few hundred dollars to several thousand. VendSoft reports that bulk machines, which sell candy and gumballs, cost between $150 and $450 each. Snack and soda machines run from $1,500 to $8,500.
To keep vending machine costs low, business owners can purchase used or refurbished machines. This is an especially good option for business owners who have learned how to repair machines, for a new machine’s warranty is less important to business owners who can make their own repairs.
With some machines, business owners can enter into contracts with suppliers to get free machines. Sometimes suppliers will agree to furnish and maintain a machine as long as a vending business agrees to purchase supplies from the supplier.
Supplies themselves don’t cost a lot because they’re purchased wholesale. For example, gumballs might cost between 2 and 5 cents each wholesale. Snacks and sodas cost more, but they’re still very affordable.
What are the ongoing expenses for a vending machine business?
The ongoing expenses for a vending machine business are similar to the business’ startup expenses. Business owners must pay:
- vehicle costs (fuel, maintenance, etc.)
- supply costs (to replenish supplies)
- equipment costs (to repair machines)
Equipment costs, in particular, shouldn’t be underestimated. Cold, wet weather can cause outdoor machines’ electronics to malfunction, and machines anywhere can be vandalized or stolen. Any broken machines need to be repaired, and any stolen machines need to be replaced.
As mentioned, knowing how to fix machines will keep repair costs low. To reduce the risk of vandalism and theft, business owners should look for safe, high-traffic areas to put their machines.
Who is the target market?
Vending machines appeal to a wide swath of people. Everyone gets hungry and thirsty (or wants a toy) at some time.
How does a vending machine business make money?
A vending machine business makes money by selling items in the business’ vending machines to customers. Vending machines may sell snacks, soft drinks, hot drinks, sandwiches, hygiene products, candles, toys, and other products.
How much can you charge customers?
Most vending machine items sell for anywhere from 25 cents (for candy or gum) to a few dollars (for snacks and drinks). A few vending machines (usually in airports) offer high-end electronics that cost much more, but these are exceptions.
How much profit can a vending machine business make?
The individual markup on vending machine items is high. For example, the gumball that costs 2 to 5 cents wholesale will sell for 25 (or maybe 50) cents. Snacks and sodas generate $1 or more per sale in profits.
Ultimately how much a business can make is determined by how many products its machines sell. This is why location selection is so important.
How can you make your business more profitable?
A vending machine business can increase its profits by offering service for other company’s vending machines and selling products in larger packages through local retailers.
What will you name your business?
Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your vending machine business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
For most small businesses forming an LLC is a great option, but if you still want to weigh all your options check our our article, What Structure Should I Choose for My Business?
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
Federal Business Licensing Requirements
There are federal regulations regarding what can and cannot be added to, sold as, and processed with food. Attached is a resource from the Food and Drug Administration detailing the process of starting a food business: How to Start a Food Business
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a vending machine business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Vending machine businesses should consider requiring clients to sign a service agreement before starting a new project. This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, service level expectations, and intellectual property ownership. Here is an example service agreement.
Recommended: Rocket Lawyer makes it easy to create a professional service agreement for your vending machine business when you sign up for their premium membership. For $39.95 per month, members receive access to hundreds of legal agreements and on call attorneys to get complimentary legal advice.
Certificate of Occupancy
A vending machine business is generally run out of a warehouse. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a vending machine business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your vending machine business will be in compliance and able to obtain a CO.
When selling food, you will need licensing from a local health department; all establishments serving food are required to pass a health inspection. Tips for faring well on a health inspections
STEP 7: Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a vending machine business
Promotional efforts for vending machine businesses don’t focus on attracting customers per se. Instead, efforts seek to gain new accounts, which are additional locations where machines may be placed. Having a website, advertising in the phone book and cold calling are all effective ways to gain new accounts.
Recommended: Get started with local advertising for your business with a $300 credit from Yelp.
How to keep customers coming back
A vending machine business can keep its accounts by offering all of the products that the account holders want. This may require putting snack, soda, coffee, and frozen treat machines in a single location.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Vending Machine Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Anyone who enjoys working on their own and is mechanically inclined may like running a vending machine business. Business owners are frequently by themselves when filling and servicing machines, so self-motivation is important. A mechanical inclination is helpful when machines need repairs.
What happens during a typical day at a vending machine business?
A typical day at a vending machine business involves four primary activities:
- ordering supplies
- receiving supplies
- filling machines with supplies
- servicing broken-down machines
The cash in machines is collected when the machines are filled.
What are some skills and experiences that will help you build a successful vending machine business?
Vending machine business owners should have a basic understanding of business practices and a knowledge of how to repair vending machines.
Business owners who don’t have experience running a business may want to take a business course through a community college or online. Coursera, Open Culture and Harvard Business School offer business courses.
Business owners who don’t have repair knowledge should take a course on repairing vending machines. The National Automatic Merchandising Association (NAMA) offers a training program that leads to certification as a journeyman technician.
In addition to these resources, there are a number of books on starting a vending machine business. Some popular titles include The Truth About Vending and Vending Business. These and similar books provide industry-specific advice that won’t be found in general business classes.
What is the growth potential for a vending machine business?
The volume of a vending machine business can be high. It’s not uncommon for a business to operate 25 to 50 machines, and some businesses have many more. Evan Carmichael, for instance, operated a vending machine business that had 200 machines.
As vending machine businesses grow, they usually remain within a single city or region. Businesses that operate high-profit machines might have machines placed throughout a 50-mile radius. Those that operate lower-profit machines often operate within smaller radii. The distance between machines is kept short to minimize drive time and fuel costs when going between machines.
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One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
What are some insider tips for jump starting a vending machine business?
The success of a vending machine business depends largely on where the business’ machines are placed. High traffic spots, such as transportation hubs, large office buildings, schools and grocery stores, generate more sales than areas with less foot traffic. The Secret Formula to Getting High Traffic Vending Locations has suggestions on how to find and secure accounts in high-traffic areas.
How and when to build a team
Most vending machine businesses start out as one-person operations. Some business owners hire employees as the number of machines they have grow. Gundersen had three employees when his business operated 200 machines.
Gundersen, however, recommends against hiring employees. He explains that the taxes, salaries and training costs reduce the business’ profits too much. Gundersen himself made the most money when he was operating his business alone.