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The Top Five Things to Watch Out for When Evaluating a Coin Laundromat Business

Guest post by: Brian Brunckhorst

Article Overview: I am often asked what I personally look for when buying a coin laundromat business. There are five key factors that I pay attention to. If any of these factors do not pass the initial inspection, buyer beware.

The Top Five Things to Watch Out for When Evaluating a Coin Laundromat Business

I am often asked what I personally look for when buying a coin laundromat business. There are five key factors that I pay attention to. If any of these factors do not pass the initial inspection, buyer beware.

Ancillary Income

Don't forget to count the Ancillary Income that a store generates. This could be as much as 10% of the Gross Income and makes a big difference to the bottom line. Ancillary items are vending machines, soda and snack machines, video games, pay phones, internet kiosks, tanning beds, etc. The average margin on ancillary items is around 50%, so $1,000 a month of ancillary income would net $500 to the bottom line. Not bad, eh? Make sure you take this into account when adding up the Gross Revenue and coming up with your valuation of the store.

Age & Condition of Equipment

When looking at a potential store, make sure you get the exact Make, Model, and Age (if possible) of each machine. Most machines have this information displayed somewhere on the machine. For top load washers, it is generally on the inside of the lid, or on the back of the machine near the top. Front load washers will often have this information on the inside of the door. Dryers will often have the model numbers inside the dryer door or on the back of the dryer. This information will be needed when you do your water analysis of the store. Pay attention to the condition of the equipment too. Most front load washers and dryers have a useful life of 15 to 20 years and top load washers, about 7 to 10 years. However, if well maintained, it is not uncommon to see dryers and front load washers lasting 30 plus years and top load washers lasting up to 15 years. Remember, this equipment is not the same stuff you buy at Sears for your house. It is commercial grade and built to last. If the equipment is old and run down when you are looking at a prospective store, you can look forward to a very expensive upgrade soon and increased maintenance costs until it is upgraded. Top load washers cost between $800 and $1,500 and front load washers start at $2,500 and go up to $9,000 or more depending on the size. Dryers can be $4,000 each. So take the condition into account when deciding on the price. Upgrading our store in Hayward, CA cost over $170,000 just for the equipment plus installation. You get the point.

Location

We all know the saying 'Location, Location, Location' and for a Laundromat this is more the rule than the exception. The location of the store should be in an area surrounded by apartments on a major street and have plenty of parking. The ideal store would be in a small strip mall with a café, donut shop, or other eatery. Remember a Laundromat is a destination store. It is not likely that someone will be driving around with their clothes in the back of their car and pop into your store to do their wash because they just happened to be passing by. That being said, it is ideal if the location is safe, with something for the customers to do while they are waiting for their clothes to finish. In most parts of the country, the majority of the customers that will come to your store will live within a half mile to a mile of the Laundromat and the majority of them live in apartments. So choose wisely. Population density does matter, and you would be smart to know what the density of residence living in apartments around your store is, before parting with your money.

Water Usage of the Laundromat

It is critical that you look at the water usage for the last 2 years of business when determining whether or not to buy a store. In many cases the seller will inflate the reported income produced by the store in order to increase the asking price. This increase can be dramatic. A store's value is based upon a multiple of generally 50 to 60 times monthly Net Revenue. For example, if the Net Revenue increases just $500.00 a month, the store value increases $25K to $30K. The Water bills are the key to unlock the truth about the wash and dry revenue of the store. The analysis is a bit complicated but can be done on a spreadsheet. With this information in hand, you can tell if the claimed income is reasonable or not. NOTE: While water analysis can be very accurate (plus or minus 5%), there are ways that an unscrupulous owner can fudge the numbers. So beware! A water leak from a leaky faucet or hose bib can add hundreds of gallons of water per day to the bill. So watch out when inspecting a store for leaks.

Lease

The lease is one of your largest monthly expenses and can either make or break your business opportunity. The laundry equipment, electrical, and plumbing installed in your Laundromat is very hard and expensive to move. So much so, that it is not economically feasible to move in the event your lease expires. With that, one could say that the value of a Laundromat is only as good as the lease and that would be a fair statement. When negotiating your lease, there are 2 main points to focus on. The total rent per month and the length. As a general rule of thumb, a rent of more than 20% of Gross Revenue should try to be avoided. Also, rents that remain flat for a period of 5 years at a time or more are the most desirable. The length of the lease needs to be long enough for you to have a chance to recapture your investment and make a decent profit for your efforts. Leases of 15 years or more (including all options) are good. Try not to have less than 8 years total.

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Article Tags: coin laundromat, laundromat business



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