Laundromat Due Diligence - Use Of Water Records, Conducting Investigation


Laundromat Due Dilegence

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
32 years experience in the laundry industry, specializing in assisting laundry buyers with buying or starting up, re-tooling, laundries in Southern CA. Laundry buyer representation, consulting, due-diligence, lease negotiations, laundry valuations. Call 619-227-5711 (Cell).






  Helpful Resources To Assist In Selling And Buying California Businesses
Chuck Post: Laundry Buyer Representation, Consulting, Due Diligence

32 years experience in the laundry industry, specializing in assisting laundry buyers with buying or starting up, re-tooling, laundries in Southern CA. Laundry buyer representation, consulting, due-diligence, lease negotiations, laundry valuations. Call 619-227-5711 (Cell).

Randall Barondess CBB, Business Brokerage Services - Central Coast

Experts at: Preparing Businesses For Sale, No-Cost Valuations and Lease Modifications. MaxOne Business, a REMAX ONE Company prepares small, mid-sized and large businesses for sale by confidentially packaging the business and providing guidance throughout the sales process.

Larry Larsen: Laundry Consulting, Brokerage, Insurance

I have over forty 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 me at 714-630-9274 or 714-630-Wash.

Peter Siegel MBA, BizBen Founder, ProBuy, ProSell, ProIntermediary Programs

Founder Of BizBen.com (since 1994). I am the Lead Advisor for the ProSell, ProBuy, & ProIntermediary Programs. I consult daily with buyers, sellers, and brokers daily about buying and selling California small to mid-sized businesses. Call 925-785-3118.

Peter Siegel, MBA: Business Purchase Financing Solutions

Niche business purchase financing advisory and loan placement services with SBA and Non-SBA Financing, Retirement Fund Rollover Solutions, Combo Financing Packages. To get professionally pre-qualified or more information on the ProBuy/ProSell Programs: 925-785-3118.

Mike Hurrell, Broker: Laundry Specialist - Southern California

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, Business Broker: Laundromat Specialist

PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.

Steve Erlinger: Laundry Broker, Consultant - Southern California

I specialize in the laundry industry broker and consultant in Southern California. 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. Call 949-500-5893.


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Chuck Post Laundromat Industry Expert
Golden State Laundry System Laundry Business Brokers
Larry Larsen Laundromat Broker
Steve Erlinger Laundromat Broker
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