Murphy Vincent, Business Broker
Business Broker Intermediary (Murphy Business Brokers & Intermediary)
The coin laundry is an all-cash, necessity of life, the service business that makes sense; if you know what you are buying, going in.
1. The Lease is your most valuable asset in a coin laundry. Remember, that all of the Plumbing fixtures, electrical service, the sewer and building fees, along with all of the physical surroundings of the laundry are totally dependent on the property and an asset for a limited period of time.
A laundry is not a re-locatable asset. These factors require a strong lease. When possible, it is always better to purchase the property.
That said it is obvious that the length, quality, and terms of the lease must be looked at carefully before entering into any laundry purchase. It is often necessary to re-negotiate the lease during a transaction. In many cases there are some issues that need to be modified, extensions required and rental rates or terms adjusted. It is recommended that you have an Industry Expert look at the lease; as well as your attorney. Laundries that I remember in the 60s are all still there. In Seminars and personal consultation with Buyers, we speak at great length of the lease issue. You must fully understand the lease on a long-term basis before completing any transaction. Failures to do this diligence can cost you, the investor a great deal and sour the experience altogether.
2. The Equipment, condition, and age all have considerable value to the purchase decision; but not as much as you might think. In a new Laundry, the cost of equipment is typically only about 55% of the total price; less in many cases. The cost of providing the services (sewer, water, mechanical work, fees, plans, permits, and construction) account for the rest. In a laundry with equipment that is 7 years or older, you should anticipate making equipment changes as a part of your acquisition planning. This might seem strange; with equipment still well under its useful life, but the benefits of up-dating (re-tooling) the laundry and increasing the income can be significant. The wrong equipment mix can keep you from achieving your investment goals. Many changes in the Laundry Business have advanced the profitability, over the last decade. Larger and more efficient equipment is commonly used now. If you are losing business because the equipment is wrong for your clientele and does not satisfy their needs, you get the same end result as if the equipment is in bad condition.
Customers want bigger commercial equipment inadequate supply and in good working condition; and are patronizing the laundries more frequently, that have addressed this. This is often an advantage. In that situation, the increased income will more than pay for the increased investment. The returns on these improvements are generally higher than the return on the original investment. If you are not operating with a Business Model that makes sense, you will put yourself in a disadvantaged competitive position and be missing out on the rewards you anticipated when you purchased the laundry. In the course of most transactions, I will look carefully at the Business Model (discussed in detail below). The hidden opportunities for increasing income in the laundry business are plentiful. Laundry customers are a growing demographic. This is expected to continue for some time.
The competition you need to focus on is not necessarily the other Laundries in your Market Area. You should expect each of them to eventually re-tool to maximize their own business volume. This might never occur but the possibility exists, so it must be a consideration. It is the Apartment and Home washer user that you need to target. Try as they will; manufacturers of “Home Style” equipment cannot compete economically with the benefits of the BIG Commercial machines we put into laundries today. Bigger is better. It makes more revenue per foot, requires less maintenance and gives the user the benefit of doing large capacities in a single washer; saving them money and speeding up their chore considerably.
If you concentrate on these areas, the business will grow from all directions. So, for the equipment; it is true that some of the can last up to 20 years; but to maximize your businesses income, you must open your mind to the value of modifying the business to meet current demands.
3. The Market Area, You need to understand the demographics surrounding the laundry you are considering. The population mix, housing makeup, family size, the trends (short & long term) and the apartment-house laundry operations all must be considered. Our industry likes low-middle income areas with large rental populations. Large families are a plus. In our “Quadrant Studies,” we look carefully at the apartments and their laundry rooms, the makeup of the population and the long-term plan of the community. We will study the other laundries in the area and analyze the potential market area to determine what the probably added investment will be and what will be the likely return on that investment.
4. The Business Model, As previously discussed, this is where the smart (and experienced) operator makes the highest return. There is a mathematical equation to the laundry business. If you follow it, your net income can be maximized. Laundry owners that have not made the modifications necessary to maximize their income have opened the opportunity up to the next owner. So now, the knowledgeable, Buyer purchases the laundry at lower, current values and makes the modifications to the business model and earns the rewards of making the investment and taking the risk.
People who look at their original purchase as the complete investment or the end of the transaction miss out on the Coin Laundry opportunity and often times; end up sorry they ever got involved in the first. Considering the mass quantity of laundries out there, it is of no surprise that many operators get involved without really knowing what they have purchased or how to make it work. This is unfortunate; most of the laundries out there are money makers; they just aren’t being navigated successfully. Most operators operate their businesses like “Quarter Factories”. That sounds fun; maybe even possible for some time. But, the truth be told, they are their competitions best friend. Know your businesses potential and aim your efforts towards realizing it.
These modifications are important to your success because with every new dollar of net profit you create, you will increase your businesses worth by about 60. That’s a big number. It is not uncommon to modify a laundry that is underperforming and increase gross revenues by 50% or more; in some cases 2 to 3 times and with little added operating costs. The other good news is that while the original acquisition may be difficult to finance, financing is available for this “Core-tool” work. This is a big topic and requires much time and detail to discuss, without fear of misunderstanding. More information on the business model is also something we discuss at great length during our Seminars and in private consultation.
5. New Laundry or Existing (with Re-Tool?), A new laundry offers the investor the advantage of new equipment and a long-term lease and should have advantages in marketing (People like trying New and Bigger laundries with plenty Big Equipment). The equipment will be the most efficient and usually will have a good mix. Most new laundries cost in the 650K to 1.1 Million range. Typically, you will be required to put a down payment of 40% or so. Equipment financing for a period of 84 Months is usually available from the equipment companies. The rates with the equipment companies are generally reasonable and they are largely fair to deal with. You are encouraged to seek other financing sources (SBA lenders and others) to compare rates and overall benefits.
A new laundry will take up to 6 Months from beginning to end. Most are traditionally sold before completion. So, time is an issue.
The Existing laundry has a history to look at. The business model can often be improved to increase earnings; and laundries are available at the pricing of all ranges. The difficulty is in income verification, lease terms that are inadequate and unknown physical factors of the equipment, services and market area. Everything needs to be looked at. Over the years the existing laundries have been sold on a multiplier of net operating income that has dipped to as low as 50 times Monthly to as high as 75. There is no right multiplier to use; because it leads to making narrow and under-researched decisions. You need to look at finding the right business first.
Once you find the laundry based on the lease, location, potential for growth, demographics, physical condition of the equipment and cost of necessary modifications you are ready to negotiate your best price. I like contingencies in an offer. There is much to review. I do not typically challenge the price, the method of evaluating the business or the integrity of the Seller until the offer is accepted, documents delivered and studies performed. If all is not right at that point, negotiations begin. Most Sellers are pretty straight with us; they know we will be thorough in investigating the business and they are pretty co-operative.
In closing, I would like to share what I believe to be the essence of success. Figure out what your customer wants and GIVE IT TO THEM! In the Laundry Business, people want a Clean laundry, with Good Working Equipment of a mix that offers enough of the popular sizes and options. They want a Safe Environment, Conveniently Located, with Adequate Parking and Access; that is Comfortable and free from unwanted annoyances. Your customers are usually regular and if machines are often out of order or any of the other items noted are a problem, it WILL cost you business.
There are plenty of laundries to choose from. I usually think to myself that for every break down of a machine, the laundry just lost a customer. Many laundry operators are of the opinion that because there are always plenty of machines not in use there is no urgency to fixing the equipment. With that attitude, it is no wonder that there are so many machines not in use. This is a good business to be in. The ratio of income for time invested is of the highest there is. However, as with most things, you should be sufficiently capitalized. You should start with a good understanding of the first six month costs for deferred maintenance and any re-tooling that you decide to do.
Many Buyers are not fully aware of the problems that they need to deal with, and often surprised at the amount of capitol they need to put into the business after the purchase. The good news is that you will only need some very basic skills for managing your business and fortunately, assistance is available; the smart laundry owner relies on the resources at hand and adds common sense.
: Chuck Post specializes in assisting those selling or buyinig coin laundries throughout Southern California. He also offers other specialized services: Expert Witness Services & Coin Laundry Valuations. Make sure you check out his popular monthly workshops on the topic of buying and selling coin laundries. You can reach Chuck direct at 619-227-5711.