Business buyers have an attraction to coin laundries or Laundromats because they are cash business and because they appear to a good part time business. Many clients that I am dealing with have been interested in coin laundries and have brought me financials to review as part of their due diligence. One of my clients had me review, while educating him, on two locations. He then went on to evaluate another 35 locations given what tools I gave him. He has made an offer on one of the two locations we discussed together. It fits all of his and my requirements.
Last week I was thinking about all the people who would like to
buy a coin laundry for sale but cannot find one. I got the wild idea that maybe I should build a new location from scratch with all new up-to-date equipment. I then started my investigation into doing this. I thought I would share what I learned from talking to the new equipment distributors.
They suggested that I needed a location that was over 5,000 sf with over 100 machines and this would cost over $1.2 Million dollars or more. His reasoning was that if I had a large location, no one would dare open another new location near my location. When I suggested that I might want to have a small location that would be operating at 80-100% of capacity he responded with, "If you do not have enough machines when your customers come in they will leave and never come back." He was arguing that it was better to have over capacity rather than under capacity. When I mentioned that the industry was down overall he responded with "Some people, not everyone, is down, and that is because they do not advertise and do not know how to run a store."
I am writing this article to warn anyone looking to buy a coin laundry to beware of the following facts.
A. Industry is down from four years ago.
B. If you look at large locations you will see that they usually run at less than capacity.
C. You make profit in this business when the store has a high number of washes per machine. You do not make money having machines sitting idle while the loans have to be paid.
D. The reason the equipment salesperson suggests big locations is so he can sell more machines.
E. A smaller location with reasonable rent and high turnover of washes is going to make more sense than a large location with lots of idle machines.
F. When you own a coin laundry it is important to spend your time on developing advertising campaigns and services that will build loyalty with your customers. 20% of your clients will be moving in a year. 15-20% of your clients have a washer in the building but they still are choosing to come to a Laundromat to do their washing. Most well run Laundromats spend 2% of their gross income on advertising. See how much the Laundromat you are interested in buying is spending.
G. Do not complete the purchase of an existing or a new coin laundry without a knowledgeable third party giving it the once over. Remember that the size of any sales commission is based on the price you pay.
About The Author: Willard Michlin, CPA offers business buyers Due Diligence Services (Second Opinion, Offer Assistance, Final Due Diligence) when they are thinking of making an offer on a business or in the process of investigating a business purchase. Serving all of California. He has written numerous articles on the due diligence process and can be reached direct at 805-428-2063 for more information and an appointment.
Posted on March 2, 2011 | 
Email This Blog Post
|
Print This Blog Post
| All Contributions From Willard Michlin, CPA, CFE
Save This Page
Comments:
