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Laundromat Due Diligence - Use Of Water Records, Conducting Investigation

A laundry is built into a location with the intent that it should last the life of the building that’s housing it, but the equipment lasts only about 10 - 15 years and some with much less. This alone should caution the buyer. A laundromat needs to be thoroughly looked over before a buyer should complete the acquisition. The income is important of course but, the path forward is even more important. A business producing any amount of cash flow may be overvalued, based on the sustainability of that revenue and the opportunity to advance it as costs continue to increase. In order to verify the revenues, many different steps are taken. A great deal of data is collected and analyzed.

There are norms and there are exceptions and there are consistencies, all are discoverable. Doing diligence is not to discover why the business is worth what the seller is stating. Diligence is done to discover why it is not.

There has been much said about the collection analysis of water and use records to verify income. It is said that the owner may run the water to show more use. Some say there is no way to really know how much water a washer actually uses. Others say the meter could be wrong. I say, Yes, Yes and Yes. But diligence and discovery require research. If the numbers do not add up, further research needs to be done until the buyers gets the number comfortable to them. The fact is, we do have records of the original factory water settings for laundry equipment. It has been many years since a situation came up where this was not available on any machine. With physical research, we are able to verify settings as well. If they have been altered, that is also discoverable. Diligence needs to bring light to the truth. Sometimes it is tedious, mostly to the seller. But, is it wise for a buyer to proceed without substantiated data? It is the decision the buyer will need to make.

If there are mechanical issues causing water to be inconsistent, then the buyer will want to know why and have that investigated. There are reasons for everything. The same would apply if it were a water meter issue. If it is not working correctly you would want it fixed. Fact, the washer will not work without the sufficient amount of water. The settings are available. Even if the owner is filling the money box, researching historic use patterns will lend light to the subject.

Doing due diligence at a laundromat is an intense process of discovery and analysis. The most important thing one needs to know, is not just if the income reported is real, but is it also sustainable? Better, does it have a better path. There are literally 100s of issues that require discovery. Water is only one of many various issues that require a more detailed investigation and the method used to obtain the information, along with knowing how to interpret it is critical to your long-term success. If you are buying a business that takes 5 years to return, then what is the status of the current laundry and what is the path forward? These are the two equally important issues.

As I mentioned, the water analysis is the most burdensome, but does the most good in determining the actual usage, but there are other ways, including viewing cameras, being in the laundry but also getting to know the market, the needs of the market, the competition and what areas to improve and reinvest more into the business, after the acquisition that will increase the rate of your return. None of these points of discovery should be overlooked and certainly not the use analysis portion.

The value and the price that you pay to purchase the laundry, should be in consideration of all of both the current cash flow value but also the sustainability of all of the following, the cost and terms of the lease, the equipment, the marketplace, the logic and possibly, the correctability of the current operating model.

Let me just add, I do not know of too many laundry buyers looking for a full-time job. They are mostly looking to capture their share of the American Dream. The laundry business affords them an opportunity to advance their lives financially, be a business owner, have added security during downturns and making an investment that can hopefully be expanded. It is important to know the facts first. We are talking of mistakes that are being made, costing buyers 10s and even 100s of thousands of dollars. The failure to look at the facts properly, the sustainability and forward path of the business, can be heartbreaking. Laundry equipment lasts about 12 years and some less. It is advisable to know where these issues stand and what added costs and when will be required is equally important.

Categories: BizBen Blog Contributor, Buying A Business, Due Diligence Issues, How To Buy A Business

Contributor:

Chuck Post
Areas Served: Southern California
Phone:  619-227-5711 Cell, 949-878-2755
Chuck Post has 35 years experience in the laundry business, specializing in assisting those building, re-tooling, selling or buying coin laundries. Offering specialized services such as: Laundry Buyer Representation, Coin Laundry Valuations, Model Development, Consulting. Call 619-227-5711 (Cell).

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