CHICAGO — While purchasing a coin- or card-operated laundry can be a great investment, when a store comes up for sale in your area, how do you know if acquiring it will be the right move for you?
That’s where due diligence comes in. It’s important to research and analyze the existing business and real estate thoroughly before making the decision to buy or not. American Coin-Op asked three experts to weigh in on store acquisition and the criteria they would use to judge a store’s merits.
Larry Larsen, of Laundromat123.com, has more than 30 years of experience in the ownership, management and construction of Laundromats. He is a licensed real estate broker active in the sale of coin laundries.
Brad Steinberg is co-president of PWS, a California-based company that says it is the largest broker of existing and new Laundromats in the United States. PWS, established in 1968, opened its 3,000 Laundromat earlier this year.
John Vassiliades is CEO of Chicago-based J. Vassiliades & Co. With more than 40 years of industry experience, Vassiliades is a licensed business and real estate broker responsible for brokering the sales of over 1,000 coin laundries.
Q: “Acquiring an existing laundry” can mean different things to different people. In your experience, what is the average owner-to-be interested in acquiring—physical property, laundry equipment, accounts, etc.—from the current owner?
Larsen: Laundromats are acquired for a variety of reasons: a desire for business ownership, pride, self-employment opportunities, employment for a relative, estate planning, potential tax benefits, equity gain and cash flow are examples. Although cash flow is the most frequent reason, a potential buyer should carefully consider their resources and all their reasons for making a Laundromat investment. Remember: A business purchase is a business opportunity, not a business guarantee.
Steinberg: They are normally interested in acquiring at least the Laundromat equipment, commercial accounts, employees, and assuming the lease.
Vassiliades: They’re interested in the whole store that’s making money, a return on investment. … There are some people who would like to be able to buy the real estate as well as the business. It’s primarily the business.
Q: How curious should a prospective owner be to learn the reason(s) why the current owner is selling his/her laundry?
Steinberg: Laundromat owners sell for many reasons, not all of which are negative. However, as a prospective owner, it is helpful to know the reason for selling, and it is imperative if the reason is because of changing market conditions (i.e. a new store being built in the area).
Vassiliades: I’m not sure, in 43 years, that I’ve ever gotten a straight answer from anybody on that. It’s not important in the long run, unless the seller is trying to cover up something. … That brings out the importance of due diligence on every store.
Larsen: Meeting the seller is very important. If you are an insightful buyer, it might help you perceive the validity of the statements of income and condition provided by the broker. A meeting with the seller will also provide valuable additional information on the current manner of operation. A Laundromat being sold within two years of purchase should be viewed as a potential problem and carefully considered.
Q: What legal or regulatory issues involving the store might influence the buyer’s position?
Vassiliades: Zoning usually comes up when they go to get their business license. I recommend getting that before closing. If there is any chance there may be changes in zoning, they should contact the local authority to find out if they can still get a business license. Other factors might be the minimum wage in the area and the cost of water in that particular area.
Larsen: Go to the building department of the city where the Laundromat is located. Request building records, permits, drawings and the certificate of occupancy to verify the official records match the Laundromat records available to you from the seller and/or the broker. Building department personnel can be asked if any changes are anticipated in the area, including development, zoning changes or eminent domain issues. Finally, check with the policing authority to verify any problems or notable crime issues at or near the Laundromat.
Steinberg: This information is helpful for two reasons: 1) to understand barriers to competition, and 2) to understand operating costs.
With regard to the former, if an existing Laundromat is located in a city that doesn’t allow new Laundromats to be built, has expensive utility acquisition fees or exceedingly high rents, this could protect an existing Laundromat’s cash flow and thus give it more value.
On the operating cost front, it is good to know what is going on with utility fees, as many cities publish their rates years in advance.
Coming Tuesday: Market/demographic research, inspections, and water/sewer