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Determining The Value Of A Laundromat

Determining The Value Of A Laundromat

I've been in a number of Laundromats to evaluate the business and have been asked by a customer or attendant "Are you doing an appraisal?"

Most of us are familiar with an appraisal. We normally relate that process to a person determining the value of a home by comparing it to similar homes in the same area.  Then, based on recent sales, the appraiser comes up with the value.

So this is this the way we determine the value of a Laundromat?  The simple answer is no..and yes.

You would certainly compare the store you want to buy with other stores in the area but stores that are similar on the surface may not be similarly valued.  To a large degree the net income will determine the value of a store. So you need to the best of your ability first determine the net income.
 
Then the "appraising" starts.  Evaluating various aspects of the store and its surroundings is how we determine the "multiplier".  We will then multiply that figure by the net income to find the value.

There are several items to evaluate to determine that multiplier:

Demographics- Is this store in an area that will support a Laundromat?  A neighborhood that has many apartments or renters, multiple people per household and income below $35,000 is one example of a good neighborhood for a laundromat.
 
The Lease-It will take several years to pay back your investment so you need to have many years left on a lease or have the ability to get a new long term lease.  Additionally, and obviously, you want it as low as possible.  Gross revenue is a factor, and if it's high there is some wiggle room, but you want it at or below 25% of your gross revenue.  (There are other things to consider in a lease which are beyond the scope of this article).

Age, condition and manufacturer of equipment-If equipment is newer and in good condition the multiplier should be higher.  Equipment is expensive and can last for many years so if you don't have to replace equipment for ten years or constantly fix equipment you are in good shape.  The manufacturer should be considered too.  Like clothing, cars or furniture there are laundry equipment manufacturers that are better than others. The better equipment will be more efficient, less likely to breakdown, last longer and therefore be a better value.

Utility Costs-Some cities or jurisdictions can have higher utility costs.  Gas and electric tend to fluctuate less but water and sewer costs can vary and be quite costly. Flash! Laundromats use a lot of water.

Parking-Some neighborhoods are walker friendly but most will require a decent amount of parking.  In short the more parking the better.  However, beware, a lot of spots don't mean a lot of available parking.  If there is a nail and hair salon and a couple of restaurants in a shopping center there will be many patrons in need of parking and some using spots for an extended period of time.  There is no exact formula as centers vary but be aware of this important benefit or liability to your stores success.
 
Visibility, Ingress and Egress-You want your store and or sign visible and from all directions.  Ideally you want your customers to enter the parking lot from both or all directions.  You don't want customers to have to go past your store and make a U Turn to get back to it.

General condition of store-In what condition is the floor, the bulkheads and folding tables?  Does it need new paint, furniture, ceiling tiles? Will it need new TV's or security cameras?

Competition-If this is the only store in the area and it's not likely competition could easily enter the market your multiplier will increase.  And it should! The multiplier will decrease given more competition.

The base line for this multiplier in today's world is 50.  Once you have determined the value or lack of value based on evaluating the items mentioned you can add to or subtract from this base multiplier.
 
Let's say, in one example, there are many positives to this store and you feel good about a multiplier of 60. The net income is $5,000 per month. This business should be worth about $300,000. In this case you are looking at a 20% return on your investment per year.  Pretty good!
 
As another example a store needs some tender loving care, some new equipment and you will be fighting for business due to competition. A multiplier of 40 sounds better here.  This store is making a net income of $4,000 so in this example the store will only be worth $160,000. Better deal, yes!?  Maybe, but remember you will invest more money (and time) on top of the purchase price to increase the income. You buy some new equipment, do some improvements and advertise.  This costs you $100,000-$150,000 but you eventually get the income up to $5,000 per month. In the end this example gives you a similar return to the first example you just got there in a different manner.
 
We all get excited about starting a new business; have high hopes for getting a great deal and making a high rate of return. All possible indeed but first, to the best of your ability, determine an accurate net income for the store then be as objective as possible in evaluating the items mentioned above so that you pay a fair price for the store and are fairly compensated for the investment of your time and money.

Steve Erlinger About The Author: Steve Erlinger specializes in assisting those buying and selling laundromats in the Orange County and Inland Empire areas. He helps potential laundry buyers navigate the many facets of finding, evaluating, and operating coin laundry businesses. He also assists current owners find additional stores or evaluate an existing  store in order to help grow their business. Steve can be reached direct at 949-500-5893 for more information.


Categories: BizBen Blog Contributor, Business Valuation Issues, How To Buy A Business, How To Sell A Business



  Helpful Resources To Assist In Selling And Buying California Businesses

Larry Larsen, Broker, Laundry Specialist - Orange, LA Counties

Larry Larsen, Realtor has over thirty years of experience in the sales, ownership, management, and construction of coin laundries. He is a licensed broker active in the sale of coin laundries, a licensed insurance agent specializing in coin laundry insurance. Phone Larry at 714-630-9274.

Peter Siegel, MBA - SBA Loans, Non SBA Financing Assistance

For over 25 years I have provided niche business purchase financial advisory and loan placement services with SBA and Non-SBA Loans, Retirement Plan Conversions, Private Investors, etc. Financing amounts available: $20K to $7MM. Call today to get pre-qualified or receive financing: 866-270-6278.

Chuck Post: Laundry Buyer Representation, Consulting, Due Diligence

Chuck Post has 32 years experience in the laundry industry, specializing in assisting laundry buyers (and entrepreneurs) with buying or starting up, building, re-tooling, laundries throughout California. Laundry buyer representation, consulting, due-diligence, lease negotiations, laundry valuations.

Mike Hurrell, Broker: Coin & Card Laundry Specialist Brokerage

Providencia Properties Inc in association with Golden State Laundry Systems is a full service Coin Laundry Real Estate Broker. At GSLS you will receive personalized attention from our professional staff of coin laundry experts. To sell or buy a Southern CA laundromat call Mike at 310-223-2240 X209.

Brad Steinberg, Broker - Laundromat Specialists

Laundry specialists - founded in 1968 by three laundry professionals, PWS is a family-owned corporation. Through the years it has grown to become the largest vended laundry equipment distributor in the United States. Call Brad Steinberg at 323-721-8832 to sell or buy a coin or card laundromat.

Steve Erlinger: Laundry Broker, Consultant - Orange/Riverside Counties

I specialize in the laundry industry (Broker/Consultant at 949-500-5893) - Riverside, Orange Counties. I assist buyers navigate the many facets of finding, evaluating, and operating a laundry business. I also help current laundry owners find additional stores, sell, evaluate an existing laundromat.

Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 800-864-0420.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews

Interview: With Chuck Post On How To Buy A Laundry Business Successfully

Chuck Post (and his Associate Chris Mason) a California laundry consultant, due diligence specialist, buyer representative for laundry buyers shares his thoughts with Peter Siegel, MBA on his weekly BizBen Vlog & Podcast show. Chuck and Chris cover all related topics on buying a California laundry.

Webinar: For Laundry Buyers - How To Buy A Calif Laundry - 7/22, 8/19, 8/26

Chuck Post hosts this live online webinar on Buying A CA Laundry. Upcoming Saturday webinar date(s) include: 7/22, 8/19, 8/26. Have your questions ready for an open and honest discussion about both the Pro and the Cons of the Vended Laundry Business. Call Chuck direct at 619-227-5711 for info, RSVP.

Laundromats: Are They Good Investments For Business Buyers? We Discuss This.

Are laundries good investments for buyers? Chuck Post, (at 619-227-5711 - California laundry consultant, due diligence services, and laundry buyer representation) discusses this topic with other advisors & brokers in this BizBen Discussion about laundry investments and if they are good investments.

Laundry Expert Reviews: The Laundry Lease And Its Effect On The Valuation

Read why longer leases increase the value of a card or coin laundromat when buying or selling a laundry. Chuck Post (Laundry Broker, Consultant at 619-227-5711) expands on the topic of lease structures on the purchase or selling of a laundromat. Laundry sellers and buyers will want to read this.

Determining The Value Of A Laundry Business: What Factors Are Important

Steve Erlinger (laundry Broker & Consultant at 949-500-5893) discusses how to value a laundry. Issues that affect a value include: demographics, the lease, past financial performance of the laundromat, age and condition of the equipment, utility costs, competition and other factors all play a role.

Laundry Broker Reports On The Latest Trends From The Laundromat Industry

Steve Erlinger, (laundry broker specialist/consultant 949-500-5893) reports the latest laundry industry trade show & what's new in the coin and card laundry industry. He discusses what various manufacturers are doing and why laundry distributors can be important ally when buying a laundry business.

Laundromat Business Valuations: Could Buyers Of Laundries Be Overpaying?

Chuck Post (laundry buyer rep, consultant, due-diligence expert) discusses the factors of appraising laundries. Why such high purchase prices is baffling - many times the value is so misunderstood that it results in laundry buyers over-paying for a laundromat. Reach Chuck direct at 619-227-5711.

Laundry Broker Explains Laundry Leases: 4 Big Issues For Buyers And Sellers

Chuck Post (Laundry Buyer Rep, Consultant, Due Diligence) discusses what laundry buyers and sellers should consider when reviewing and considering a laundromat lease. A must read for potential laundry buyers and owner/sellers of card and coin operated laundromats. Reach Chuck at 619-227-5711.

See All News, Tips And Events


Steve Erlinger Coin Laundry Broker
Chuck Post Laundromat Industry Expert
Larry Larsen Laundromat Broker
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