Michael Adams Green Mountain Mustard and Gredio

Michael Adams, Owner
Green Mountain Mustard & Gredio

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Buying food manufacturing equipment

How to Purchase Equipment for Your Food Business

When you open your own co-packing facility (as I did in late January), you spend your life Googling for equipment – searching Craigslist, eBay, YouTube, etc. You end up calling companies who don’t return your phone calls because you’re small potatoes to them, and when equipment arrives it’s like fifty times better than Christmas.

Buying equipment is terrifying and exciting.

It’s a BIG purchase. And it can be a day’s worth of spinning your wheels if you don’t know what you’re looking for. Sometimes, even a single word change yields the search results you’re actually looking for.

Recently, I purchased about $100,000 worth of equipment for our new facility (and I still have a wish list a mile long). And believe me, I did not win the lottery to buy this equipment. I used a couple of unique sources to make it happen.

This post contains everything I learned over the past six months trying to find, rationalize, fund, purchase, transport, assemble, operate, and maintain equipment. And I’m no seasoned vet – if you have lessons learned, I’d love to hear about them in the comments section below.

Here we go:

How to Purchase Equipment for Your Food Business

Step 1: Find the Equipment You’re Looking for

Sometimes, you have no idea what you’re looking for. Is it an automatic machine? Is it foot-pedal powered? Does it even exist (chances are it does  – I mean, there’s a robotic cake decorating machine…). Make a list of everything you’re looking for and start searching. From fully-automatic lines to piecing a line together, look at both options. Or, maybe you need one piece of equipment. For me, those pieces of equipment were a flow-wrapping machine, a sheet cake cutter, and a double-rack oven. And a couple smaller pieces – three-door coolers, a mixer, and more.

Here are a few places to find equipment and my thoughts on those sources:

New from the Manufacturer:

One of the best benefits of working directly with manufacturers is the ability to find exactly what you want. When we purchased a sheet cake cutter from FoodTools, our sales rep, Neil, was amazing. He doubled as customer service, technical support, and a liaison between our client and my kitchen. It was an expensive piece of equipment ($38,000) I did not want to buy used because it’s custom made. This machine does in a couple hours what would normally take us 17 hours. Amazing. We continue to work with a couple manufacturers to find other pieces of equipment.

New or Used from Restaurant Supply Store:

We have a local supply store here – and the prices can’t be beat. If you’re looking for smallwares, this is the place to go – forget the kitchen aisle at your local home store. As for used equipment, many restaurant supply stores have new and used equipment. Ask about used to save a ton of money. We purchased a 60qt mixer from our local store. It was sold as 3-phase, but when it arrived, we discovered the previous owner had gone under the hood to replace the motor and convert it to single phase (a regular outlet) – yet, the plate on the outside said 3-phase. Luckily, our electrician fixed in 15 minutes – for free. Be weary of as-is (as you’ll learn in a couple paragraphs) and be ready to fix it.

Used on Craigslist:

I purchased a couple pieces used from a bakery in Massachusetts – 70 full sheet pans and an egg-cracking machine (best money I’ve ever spent). It was sad the bakery was going out of business after 27 years, but I was excited to get some of their equipment. I recommend looking at used equipment that you can drive to and inspect. I stuck to looking in Burlington, Boston, Hartford, and New Hampshire. You can find some great deals, inspect the equipment, and pick it up within a matter of days – or hours if you’re close by.

Used on eBay:

Everything is sold on eBay – from conveyor belts, to kettles, labelers to ovens. I found a great-looking double rack oven in California in November. I called the seller to arrange shipping and he gave me an end-of-the-year deal I couldn’t refuse. Apparently, it was too good to be true. I purchased the oven with an equipment loan and I have not received it – 3 months later. (Update: Finally heard from the guy mid-February – he’s supposed to be sending us a refund check…..) My advice on eBay is try and go see the equipment you’re buying. And buy it through eBay to get their buyer protection. I paid with an invoice from the equipment dealer – not through eBay so I wasn’t protected. Don’t do it. Seriously. Do not do it. Buy your used equipment through eBay.

Used at Auction (Online or In-person):

I got a tip from my girlfriend’s dad that they were selling some commercial kitchen equipment at his company. I hopped on to bid on a three-door refrigerator. I got a great deal on it – $900 landed. This is normally $2,000 – $2,500. Come to find out when the item arrived, it was actually a freezer that was re-wired as a fridge (for electricians out there, it was 40A rewired to 20A). Our electrician even got a good shock in the process. So, now we have a freezer – not a fridge. We’ll get it rewired and use it to store frozen things. Still on the lookout for a fridge or walk-in.

A couple notes about buying at auction:

While you may be able to find the perfect piece of equipment, the bids will rise at the end. You can set a maximum bid and let it run the course or bid at the last minute. But, keep in mind that you’ll pay an online buyer’s premium – anywhere from 3% to 18%. Then, you’ll have to figure out how to pick up the equipment. If it’s local, go get it. If it’s heavy, you’ll need to add on freight.

Sourcing Equipment from China:

Over the pas year, I’ve been using Alibaba.com to look at all the food production equipment made in China — it’s the exact same machines you can buy in the US, but with one clear difference: cost. The machines are normally a 1/10 the price. I almost bought a flow-wrapper machine from a company in Shanghai, but stopped before sending them payment. It was thousands of dollars to shop the machine, and for a couple thousand more, I could get the support and customer service of a company in California. When and if you work with a Chinese manufacturer, try to do it through an equipment broker who has direct contact with the factory you’d like to use. And if you can spring it, go see the equipment. We could have gotten an entire filling line for about $35,000 USD landed –but I haven’t pulled the trigger because of support and, quite frankly, I think we can piece together a line for about $50,000 from American manufacturers. And finally, the customer service of an American company is reassuring when you have no maintenance guy on staff and you need to figure this all out on your own. It’s great to take a video of the problem, send an email with “WTF?” in the subject line, and get an answer immediately.

I used each source when compiling equipment for the co-packing facility. As I bought equipment, the more I appreciated purchasing new equipment or buying from reputable dealers. Used equipment is a risk we experienced more than once. Do your homework on used equipment (Step 4!)

Step 2: Determine if the Equipment You Want is Worth Purchasing

Sometimes, you learn a thing or two from reality TV shows. (I said sometimes :p) In this case, it was The Profit with Marcus Lemonis on CNBC. You should binge watch every single episode as there are key lessons to directly apply to your business (there are a handful of food manufacturers featured). And you can watch it on Hulu so you don’t need cable.

In a recent episode, Lemonis works with a custom lighting manufacturer to help him realize investments in equipment are smart because they save you time, money, and labor. And the equation he used was Return on Assets, or ROA for short.

Sure, I heard about ROA in my financial accounting class in college (I got a C+ so go figure), but I never understood it until it was explained in a way I could relate to.

ROA is a calculation of the time and labor your equipment is running annually divided by the cost of the equipment. Let’s work through an example:

You want to buy a dry-fill machine for $7,100. You’re not sure if the investment makes sense, but then you think about the time you would save if products were automatically weighed out for you. Here’s how to calculate the amount of labor invested:

  • Number of employees (2)
  • The wage of each employee – with taxes ($14/hour)
  • Hours to produce product manually the old way (8 hours)
  • Hours to produce product with the new machine (3 hours)

Multiply the “old way”: 2*14*8 = $224

Multiple the “new way”: 2*14*3 = $84

Subtract the two: $224-$84 = $140 (this means you’re saving $140/shift in labor)

Now, take the number of hours you plan to run the machine. For example, I’ll run the machine 8 hours a day, 3 days a week, every week of the year for all of our dry prep. A total of 1,248 hours.

Multiply your hourly use (1,248) by the labor difference ($140) to get $174,720.

Divide your cost of the machine into the total hours

$7,100/$174,720 = .04

Clearly we’re going to use the machine a lot – and it’s inexpensive. According to my return on assets, I’ll pay back the machine in 14.6 days (365*.04).

What does this mean?

If you bought a dry-filler today, the return you would get on your purchase over the first year would happen in just 15 days, based on two people using it for the production outlined above. In simpler terms: Buy the equipment.  Once the machine is paid off you reap the benefits for years to come.

Return on assets isn’t the only way to figure out if buying equipment is worth it – you might just know. For example, a $250 horizontal band sealer to seal bags of anything is well worth never having to deal with a single-bag heat sealer ever again.

Or, maybe upgrading from your counter-top Kitchen Aid Mixer to a 20qt Hobart mixer is the right move. Four times the batter at the same time. Obviously, buy the mixer. It creates just enough economies of scale to help you grow your business.

Whether you know you need it or you want some math behind it, return on assets is probably the best way to evaluate your next equipment purchase.

With that out of the way, there may be a bigger issue: how the heck do you pay for this equipment?

Step 3: Determine how you’re going to pay for the machine

When my business partners and I started talking about a larger facility, we were blown away by the cost of the equipment. Initially, we had a wish list a quarter of a million dollars long. That was quickly refined to the necessary equipment needed to open. With the much smaller list, how were we going to pay for this? Our own pockets would only go so far – and anything over $3,000 couldn’t be paid for in cash by either of us. Here’s how we financed the majority of our equipment:

We used what we could

Between the three of us, we had a good amount of equipment that could be used. It shaved about $40,000 off the total bill by getting by with what we had.

We self-financed the small stuff

Collectively, we put in about $30,000 of our own money to buy equipment, get the permits and licenses set up and get a couple of smallwares from the local kitchen supply store (they’ve been nice to us!)

We went to three banks

None of us are rolling in dough (pun intended). We tried to go to three banks, filled out a mountain of paperwork, and got denied swiftly from all three of them. Traditional small business financing was not going to happen. They asked for everything – three years of financial statements, credit reports, three shades of our business plan, explaining every assumption we made on our projections, and more. We didn’t have our hopes up, but we’d to go back to the bank after a year or two (with solid financial history) to see if they’d like to lend to us.

We got some angel funding

Luckily, our families chipped in some cash to help the business get off the ground. Some of this went to equipment, but the majority of the cash went to fit-up of the building. Our fit-up was expensive and it hurt our cash flow tremendously – right now it’s at $40,000 and climbing. But, the space looks great!

We leased a few pieces of equipment

This is how we successfully opened our kitchen – we leased equipment from a couple different equipment leasing companies. It’s how we were able to buy a $38,000 brownie cutting machine – that we pay just over $1,000/month for. Or, the $15,000 flow wrapper we pay about $550/month for. Basically, when you don’t have the cash to buy the equipment out-right, leasing companies lease it to you for a monthly payment — that way your cash flow doesn’t come crashing down before you open your doors.

Equipment leasing is exactly what you think.

You contract with an equipment leasing company (there are tons) to purchase a defined amount of equipment. Then, you pay them back monthly over a defined term – 24 – 60 months. And at the end of your term, there’s usually a $1 buyout. That means you buy the equipment from the leasing company for a buck.

But leasing companies are not created equal. The leasing company we’re using for the brownie cutter has 13-15% interest. The flow wrapper leasing company has ~9% interest rate – a huge difference over 5 years.

You can also lease new equipment purchases through state-funded equipment loans. If you’re interested in this service to get a new piece of equipment in your kitchen, simply google equipment leasing and your city. You’ll find a local provider and many only providers. Be sure to shop around and read your contracts, too.

We financed some through Community Capital of Vermont

When we visited banks, they told us about Community Capital of Vermont – an alternative lending provider that works with small businesses all over Vermont – and they take non-traditional collateral (you know, no cars and houses). After a lot of paperwork, we just closed on a $30,000 equipment loan a few weeks ago. We can draw on the money when we want so we’re not paying on all $30,000 from the beginning.

Financing your equipment is no easy feat. Whether you pay for it yourself or have it financed, there are many ways to get the equipment to your kitchen (or your co-packer’s space, too).

Our equipment buying isn’t over. We still have a wish list. Because, the only way we’re going to run a profitable venture is if we have the equipment to make more product, faster. Definitely still a work in progress.

Step 4: Do your due diligence (Do not skip this step)

I’m reminding you again because it’s important.  If you’re buying used, do your best to figure out who you’re buying from. Ask all the questions – is it working, does it included extra parts, can I get it shipped, can I come see it, etc. And if you can’t do it, find a friend who lives in the area and never go alone.

The equipment dealer in the oven saga above sent me pictures, kept me updated, and sounded like an honest guy on the phone. However, the most recent part to the story is he’s supposed to be sending me a refund check so we can go buy another oven – one from someone who can ship on time – and not three months late.

Step 5: Figure out transportation & freight

Once you’ve paid for your equipment, it’s time to get it to your kitchen. Freight is often times best quoted by the equipment dealer because they deal with freight guys all the time. You can find your own quote, but the dealer will probably beat it. For example, our flow wrapper shipped for $750 from California (we’re in Vermont). My quote? $1,500-$1,700. Yes, please. I’ll take the $750.  You can also use a freight broker (this goes for shipping product, too). These brokers “broker” freight prices and do the haggling for you to get you the best price – worth exploring. And don’t forget – if you don’t have a loading dock, you’ll need a lift gate. This gets your equipment off the back of the truck and onto the ground for transport into your production space. While I don’t know too much about freight and transportation, I do know that you need to shop around. And work the price into the overall cost of your equipment, too.

Step 6: Get the machine off the pallet (hilariously it’s own step)

If it’s a big piece of equipment, it’s going to come in a wooden crate – best opened on a day where you’re in a bad mood. Grab a crow bar & hammer – start breaking that baby open. Then, if your machine it is on wheels, the wheels are probably slightly elevated so they don’t roll off the pallet and break your toes. If you don’t have a fork lift (a lot of small producers – use included – don’t), then you’ll have to think of a few fun ways to get the machine off the pallet. Our flow wrapper (which probably could have been lifted off the pallet) was bolted to the pallet with 8″ long bolts. Not the easiest. With a 6-foot long stainless steel pipe, we lifted the flow wrapper and got the bolts out. Then rolled it off with plywood. Talk about a large pat on the back.

The cutter was another story. It was also in a crate (getting way more fun now). Then we got 6 strong construction guys to lift the 1,500 lb machine off the pallet. Much easier, believe me. Either way, make sure you have some strong guys or a forklift to move large equipment. If you can’t get either of those, you can get pretty crafty with a pallet jack – my new favorite toy.

Step 7: Assume assembly directions are awful.

I’m convinced technical writers (the people who write instruction manuals) have never put the equipment they’re writing about together. Why? Because the directions are never easy to follow. I found it much easier to fly by the seam of my pants. Depending on how complicated the machine is, I’d set aside a couple hours to put it together and run a test. It took a couple days for us to figure out the flow wrapper. The cutter on the other hand – super easy: Put product in and press go with both fingers.

Step 8: Train at least three people on the machine (and expect to call customer service 12 times)

With thousands of dollars in complicated equipment on the production floor, I was the last person I wanted to have trained on the machine. But, with a big contract looming, I was there everyday getting frustrated with the flow wrapper – only to eventually train 3-5 people on the same machine. Because, as CEO of our kitchen, fixing the flow wrapper is not my top priority.

That’s why you need to train people. Training people gives your workers a sense of autonomy – it’s “their machine” – and it helps you do the important stuff that needs to get done. And when you’re training them, have them call customer service to get support on the machine. Why? Because then they are able to troubleshoot when something goes wrong. That ultimately means you don’t have to be on-site all-day every day.

Step 9: Support your team with the tools they need & locate a local technician

While the majority of our equipment doesn’t require many additional tools, our flow wrapper was screaming out for about $100 in tools and supplies to be cleaned and maintained. And those stainless steel brush heads aren’t cheap. But, my team needed them to do their job better, so it was ultimately worth it. And we, as a leadership team definitely needed some help because the inner-workings of kettles, fridges, mixers, and more goes right over our heads. If the company you bought equipment from doesn’t have a tech in the area to fix and service your equipment, locate the nearest third party tech so that when machines break you’re not stuck trying to figure out how to fix something.

Step 10: Revel in how much faster your new machine can do the work

It’s amazing how much faster product can be produced when you have the right equipment. We can now produce 4,000 brownies a day – we used to produce 2,000 and that was a long day. We’re working on building up our efficiencies with the hot-fill side of things so that we can produce 2,000-2,500 units a day. (Basically, that means much bigger kettles – not cheap). There is a lot of equipment out there to make your lives easier. For example, the brownie cutting machine (which cuts way more than brownies) is $38,000, but it takes what would taken 17 hours manually and boils it down to about 3 hours. The machine will pay for itself by the end of the year.

This guide isn’t meat to be the nightmarish guide to purchasing equipment. It’s supposed to get you to think critically about purchasing and maintaining equipment for your business. Sure, there are a few horror stories thrown in, but over all, I’m happy with the equipment we purchased. I hope this huge post was of value to anyone looking to purchase or lease equipment for their food business. If you have any tips to add, I’d love to hear them in the comments below.

Thanks for sticking it out with me for a couple months of no posts as I worked tirelessly to open up our new kitchen. I appreciate it!

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15 Comments on this post

  1. AUTHORKaren

    on March 4, 2016 at 12:40 pm - Reply

    Thanks so much for sharing! I read all of your posts and they are very helpful to a new food manufacturer/ entrepreneur such as myself. Thanks for taking the time and sharing your experience! This was very informative. I may need to purchase equipment in the future. Thank you!

    • AUTHORmichael

      on March 4, 2016 at 11:44 pm - Reply

      Thanks so much, Karen! Glad you enjoyed the post — let me know if you need help with your ROA calculations — it’s a great way to identify if you should invest or not.

  2. AUTHORJanet Malone

    on March 4, 2016 at 2:55 pm - Reply

    Wow Michael! Good for you. Congratulations! I’m close to the same boat. Doing some ROA and cost analysis, pros and cons of growing my business too. I’ve been staying stable the last 2 years at about $50,000 in sales because I wasn’t sure if I wanted to look for a co-packer or try to find equipment to be able to increase my rate of production. Being able to make 1,200 Quinoa Tortillas and hour vs. my current 75 would be huge game changer for me! But it looks very bleak to be able to set this up in my current facility (aka my certified kitchen in my basement….) which means looking at investing in property also…. Thanks so much for sharing your experiences. Wishing you much success! (One last thought about funding; What are your thoughts on a Kickstarter promotion???)

    • AUTHORmichael

      on March 4, 2016 at 11:43 pm - Reply

      Thanks, Janet – it has been a WILD few months. This year is certainly gong to bring some surprises. I like kickstarter for products that have a wide consumer base and solve a problem — food, not so much. You could run one locally, but I wouldn’t expect a large amount of capital from it. Good luck with your growth!

      Michael

  3. AUTHORAJ

    on March 5, 2016 at 6:16 pm - Reply

    Michael,

    Great post, I do think the ROA is not calculated correctly up top. It is the cost of the machine divided(/) by difference or savings from the current process times(x) amount of time machine will run in a year not the cost to run the machine divided(/) by the machine cost.

    ROA= cost of equipment/(current cost to manufacture a certain amount of goods in an hour – cost to manufacture with equipment more goods in an hour)(how many hours machine produces a year)

    So lets say new equipment cuts your cost in half from $100 an hour to $50 an hour producing twice as much with same labor costs including machine cleaning/set up time needed (which a lot of people forget to factor in) and you run the machine 10 hours a year with a machine cost of 1,000 it would be paid back in 2 years.

    ROA=1,000/(100-50)(10)
    1,000/50*10
    1,000/500
    =2 years to make back machine cost from difference in operating costs

    I hope that clears up how the ROA is calculated.

    • AUTHORAJ

      on March 5, 2016 at 6:35 pm - Reply

      Your return I didn’t go into after the pay off period so a machine life of 5 years from above making a $500 return on the last 3 years each, would be ROA of $1,500 total.

    • AUTHORmichael

      on March 6, 2016 at 11:22 am - Reply

      Hey AJ,

      Appreciate your clarification on ROA — I’m just going off a TV show because it was the only way I could understand the concept and I thought I calculated it right — I’ll add your changes to the post.

      Thanks!

      Michael

    • AUTHORJeff

      on March 25, 2016 at 10:59 pm - Reply

      Also, the $140 was per SHIFT, not per hour… right?

      • AUTHORmichael

        on March 25, 2016 at 11:09 pm - Reply

        Whew — good catch, Jeff. Thanks, man. I just made the correction!

  4. AUTHORJames

    on March 7, 2016 at 11:49 pm - Reply

    Do you have a suggestion for a horizontal bag sealer(you mentioned them in your post) ? I was looking at a few, but I couldn’t find many reviews.

    Would be great if the sealer had date stamping, but it’s not an absolute requirement.

    James

    • AUTHORmichael

      on March 15, 2016 at 6:08 pm - Reply

      Hey James — realized I never replied to this — must have replied in my sleep :p. I’ve had good luck with Entrepack. They have a vertical band sealer I’d like to buy. We have their flow wrapping machine. Fast customer service and knowledgeable staff. Other than that, you can grab a cheap one from China with coding for about $500. Good luck!

  5. AUTHOREric Jackson

    on September 12, 2016 at 10:03 am - Reply

    Great article. I read your all posts and they are really very useful for those who are new in this business. Thank you very mush for sharing your real life experiences with the audience.

    • AUTHORmichael

      on September 16, 2016 at 4:34 pm - Reply

      Hey Eric,

      Thanks so much for reading and commenting. This was a tough post for me to write with all my mistakes, but if it helps other people, then awesome! — Michael

  6. AUTHORDark Mode

    on September 8, 2017 at 8:28 pm - Reply

    I want to try kind of bakery business in Nigeria. I need bakery equipment, and have nice place to start. I new to this business, can you give me some advice? Can i buy used equipment? There are a lot of used machines on online marketplaces, i want to buy here https://jiji.ng/23-bakery-equipments i find some in “new” condition and low price. But is it worth buy used machines?

    • AUTHORmichael

      on October 6, 2017 at 2:13 pm - Reply

      Hi — to get started, it’s definitely possible to buy used equipment – just make sure it works :p

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