As a Laundry Consultant, serving California laundry owners and investors, I am afforded the opportunity to see and analyze why various laundries make or lose money. Time and time again my associates and I work with our laundry clients analyzing what the true value of their laundry is and what can be done to improve it.
The biggest questions laundry owners are asking include:
• What determines the value of my laundry?
• I paid too much for my laundry… Can I recover my investment? Without making another big cash investment?
• How can I increase my laundries value?
• Can my lease be improved or even be lowered?
• How do I achieve my laundry investment objectives?
These are just a few questions I hear frequently from Laundry Owners. The fact is that positive answers to all of these questions are available. I am one source and there are many others. But wherever you turn to get answers; be absolutely certain that you understand the underlying realities of this business. You will be greatly advantaged if you do.
Unfortunately, most laundry owners are not set up for success. They are not given the knowledge nor have the advantage of experience to fully realize the value of the investment or foresight to see the probable deteriorating factors of their investment. From the time escrow closes and sometimes all the way to the re-selling or closing down of the laundry, owners are left unaware of the "diamond in the rough" they possess.
A few years back a San Diego laundry owner called. He wanted help dealing with his Landlord so he could sell his business and not have to close it down. His lease was up and the landlord no longer wanted a laundry in the “highly regarded” shopping center. It attracted the wrong people and the laundry had been let go to a point that other tenants were complaining about the street people nesting in it and the laundry customers coming in to their business for quarters and complaining to them. This laundry once did well and had a decent fluff & fold business that supported an attendant. But it was closed down when the attendant quit and the owner was unable to find someone. Thinking he wasn’t making profits after paying the attendant anyway the service was closed. The laundry has been left unattended since.
We did the basic turn level evaluations and market area analysis for the owner. His equipment was old and had outlived its useful life by about 6 years and the mix was wrong for the market place. We determined that the strength of the location would support the re-investment of re-tooling.
We would also have the opportunity to increase the poundage and therefore the income. We performed a full evaluation on the business and then re-built the laundry on paper as a part of a business plan to present to the Landlord and Finance Company. Following a considerable amount of tactical negotiations, the landlord agreed to write a new lease If we did two things. First was to replace the equipment so people would stop complaining. Second was to have the laundry attended at all times.
The results were good and growth came more quickly than expected. Instead of loosing his original investment entirely, he put $130K more into it (fully financed) and his sales went up by 70%. His store made enough money that within 6 months it sold for 280K. Footnote: We sold this laundry again for over 400K.
Laundries are an interesting business. While billed as “easy to operate” every operator knows that it might not take a lot of the owner’s time but there are many things that must get done by someone. A big problem is that many owners realize that things can be put off for quite a while without negative results in income, so things are left that should be tended to. This deferred maintenance; along with not keeping up on the lease points are the leading causes of failure for an established laundry.
Ask yourself: If you purchase a laundry at 60 times net (ROI of 20%) and you operate it for 5 years; and the earnings are legitimately 20% and stay at that level. How have you done? Have you made money? You would think so. The truth is that unless you have grown the business significantly the answer is “PROBABLY NOT.” Your Equipment is now 5 years older and your Lease Term has decreased. Your Laundry has probably decreased in value. Getting lease extensions or options are difficult. This is especially true if you wait until you are going to try to sell.
We just had a client who had to pay $50,000 to his landlord for a 5-year extension (he only had 9 years left on his lease and wanted to sell). Sounds crazy but what are you gong to do. He couldn't get any kind of price for his laundry without a reasonable time for the new buyer to amortize his/hers investment. If he had called me a year earlier I could have probably gotten the extension without the fee. That’s the shame of it.
Important Example: if you make 20% on your original investment each year for five years and therefore have paid yourself back. But then what if the Gross Value of the investment itself has decreased? What if you have to sell it for less than you paid for it? Now you have a Capital Loss. If you deduct that loss from the income you have earned, did you still make 20%? The solutions are available to you. Learn how use this information to improve your position and avoid loss. Remember as exampled, $100.00 IN NET INCOME = Approximately $6,000.00 IN VALUE!
About The Author: Chuck Post specializes in selling coin laundries and consulting with laundry buyers and sellers. Let my associates and I help guide you on the path to success: Laundry Specialists * Expert Witness Services * Coin Laundry Valuations * Monthly Workshops On Buying & Selling Laundries. You can reach Chuck direct at 619-227-5711.