GLENDALE, Ariz. — I wish I had a dollar (coin) for each time I heard, “How can I find the best Laundromat for sale in my area?” There is more than one road to achieve this.
First, you must ask, “Do I have enough money to buy and improve the best mat in my area?” Undercapitalization is one of the main causes of business startup failures.
You also need to know what’s the best mat for you. A cheap, run-down mat is usually better for an experienced mat operator who knows how to raise it from the dead.
In Part 1, I explored certain characteristics of laundries for sale, then offered the first two of my strategies for finding the best store. I’ll conclude today by sharing the rest of my list and discussing how to value a Laundromat.
STRATEGIES FOR FINDING THE BEST STORE (Continued)
3. Buy a Rundown Dump of a Mat Cheaply and “Raise It from the Dead”
You want there to be no new recent competition nor any in the pipeline for the near future. This was my favorite scenario, because it’s very likely that the mat made money in the past. If the mat in question was run down due to bad management and not because of a big, new competitor, you may have a diamond in the rough!
The seller is usually desperate to sell a money pit when you come along and save the seller (and the landlord). You can negotiate a nice cheap price to buy, and also negotiate a better lease.
You still need a decent investment to accomplish this because after you buy the mat, you will surely need to install new equipment and remodel the place from the inside out.
This is the kind of mat that also requires a new storefront (one with automatic doors, I hope) and big, new signs. You must show the public that the “nightmare” mat is gone and something new and exciting is coming their way.
4. Ask the Local Laundromat Detergent Suppliers for Leads
Ask the suppliers in your area (if there are any) if they know of a good mat for sale and leave them your contact info. They routinely interact with Laundromats on a weekly basis. Sometimes mat owners will ask them if they know anyone who is looking to buy when they start thinking about cashing in their chips.
5. Enlist the Aid of Business Brokers
Utilizing brokers and online business sale sites wasn’t my cup of tea but you may think differently.
6. Check the Business Opportunities Section in Your Local Newspaper
Consider also looking into ethnic newspapers, if your area has them. For instance, if your area has a lot of Chinese Laundromat owners, put an ad in the Chinese newspapers; they will translate your ad into their language.
From my experience, you get a lot of calls. Many are “tire kickers,” but some are serious and are financially prepared.
7. Drive the Areas You Like and Canvass the Laundromats There
I personally like this method. Walk in and simply ask if the mat is for sale. Leave your contact info whether it’s for sale or not. Be patient. Sooner or later, you may get a call.
8. Enlist the Help of Distributors Who Can Act as Brokers
Like a detergent supplier, distributors usually have their ear to the ground in their market. But you need to vet them first.
HOW TO VALUE A LAUNDROMAT
Many mats end up being sold in the EBITDA range of three to five times the profit, but there are exceptions.
What is EBITDA? It’s Earnings Before Interest, Taxes, Depreciation and Amortization.
You start with gross sales, then subtract the regular operating expenses, which are most of the expenses: rent, utilities, repairs, supplies, payroll, etc. Don’t include loan payments or taxes.
After deducting these expenses from the gross, you’re left with the net earnings (profits).
If the mat has equipment that’s less than 3 years old, a long lease that’s easily transferrable, steady income, and there are no new mats entering the trading area, the ratio could be as much as five to six times the net.
If there are red flags, it could go as low as one to two times the net, depending on just how “red” those flags are. A short lease with no options, or a new “mega” mat being under construction nearby are major red flags that would cause me to walk away.
Providing wash-dry-fold (WDF) service raises a mat’s value, but not as much as a fully self-service mat doing the same numbers. This is because WDF requires more work and attention on the owner’s part. There are more employees to manage, plus various problems come with the service because the mat is responsible for customer property.
If the mat offers pickup and delivery, its sale value in relation to the gross is even lower due to greater management needs.
Now, that’s not to say that you shouldn’t buy the mat! I ran WDF my entire career and did well with it. I know some owners who are making lots of money with pickup and delivery. There may even be some self-serve mats out there that can receive a boost by adding WDF, if you see that as appealing. However, I would not buy a losing mat with the idea you can boost it solely by adding service work. All the other requirements must be there first, I believe.
And there are other considerations: Is visibility from the street good? Is the mat making a profit? How do you verify? Gas bills seem to be the most reliable source. A seller can cheat more easily on water or even electricity usage, but it’s not as easy to inflate a year’s worth of gas bills. Keep in mind that many mats have leaky washer water and drain valves that will inflate the water bill, throwing off any “utility formula” that uses utilities to determine income.
If you’re in the market for a store, I wish you luck in your search.
Miss Part 1? You can read it HERE.
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].