CHICAGO — Whether you are buying your second store or selling your fourth store, it’s easy to understand why your stomach is churning. Costly buying/selling mistakes must be avoided. A little bit of tossing and turning is par for the course, but one of the best ways to ready yourself for a key transaction is to get some professional advice.
In lieu of some antacid, American Coin-Op offers a host of buying and selling tips courtesy of industry veterans.
KNOW THE BUYER
“Generally, I recommend buying a store rather than building one because the costs are more controllable,” says Don Cook, a Pellerin Milnor Corp. key account representative for vended laundries. “When buying a store, I want three years of owner tax returns and I need to know store volume, including the percentage volume from wash, dry and fold.”
If you build a store, it’s all about finding the ideal location with strong demographics, Cook says. He looks at the number of households in the sales area making less than $49,000 yearly and the percentage of renters in the area. In an urban environment, the sales area may be one mile or less; in a rural environment, the sales area could be two miles, he notes.
It’s also important to study both past and current demographics, he adds. “Four years of demographics would be good.”
Cook requires a minimum of 10 years on the lease, as well as owner financing, if possible. Cleanliness and lighting also catch his eye when evaluating a store. However, he wouldn’t necessarily shy away from a less-than-ideal store with good volume because the volume can rise with some store improvement, he explains.
Evaluating the owner’s asking price is difficult because each person has his/her reason for buying and varying profitability expectations. “Don’t forget to look at the store debt.” More importantly, Cook believes if a store isn’t profitable doing two to three turns a day, it’s a lost cause.
Laundry competition rates a 6 or 7 on a 1-to-10 scale, he says. Two old stores in your sales area may not be as important as one new laundry. “This issue goes back to demographics. The demographics let you know [how much money] can be generated in the area.”
It’s not really a buyer’s or seller’s market, he believes. “However, the return on investment seems a bit lower these days. A 20% return used to be the norm; today a 15-to-18% return is more normal.”
Cook strongly suggests getting a distributor’s help when selling a laundry. “A good number of distributors may have a buying/selling division within the company. A distributor may also have more in-depth experience than a consultant.”
Using a consultant for a second opinion may be helpful, but it’s not crucial, he states. Cook believes in distributors because they want to do future business with sellers. “A good distributor should also advise you when not to make a sale.”
He doesn’t necessarily rely on a particular pricing formula today, but here’s one he’s used in the past: gross yearly volume less depreciation (washer, dryers, heaters, etc.) value.
The biggest mistake a seller can make is not knowing enough about the buyer, he says. He finds plenty of buyers who aren’t serious. “I conduct investment seminars. If seven to 12 people show up, only one or two of them are serious buyers. Make sure the buyer has at least $50,000 to $75,000 in cash or (it’s) no deal.”
Knowing the buyer means gathering personal and financial information, he adds. “I want a business resume in order to get an idea of what the person is all about.” Cook admits that the buyer’s background could prevent him from making the sale. More specifically, he demands a credit report plus a financial statement.
ELIMINATE MISTAKES
All things being equal, a prospective owner should investigate buying a store rather than building one, says Dick Ruel, Maytag Commercial Laundry national sales manager. “The reasons are varied, but include an already established market, cash flow, and a distributor who understands the store’s and customer’s needs.”
Seek assistance when buying a Laundromat, he says. A broker and a knowledgeable distributor can be helpful, and the Coin Laundry Association (CLA) is also a valuable resource to consult when looking to enter the business, he adds.
Prior to buying a store, the owner needs to diligently research the current location, the demographics of the area, and any future changes to the immediate area, Ruel explains. “Reviewing the self-service laundry’s financials isn’t enough to paint the proper picture of the entire business. Potential owners should obtain a demographic study from the CLA, which can be done fairly inexpensively. Speaking with city planners and the chamber of commerce will provide the best look into the future landscape of the area.”
If you are going to build a store, understanding the demographics and being aware of future construction changes need to be taken into consideration, Ruel advises. “Also, cash flow is important to understand. The owner must make enough profit to keep operations functioning.”
Before buying a store, a business plan, including a pro forma, is required, Ruel advises. “A pro forma projects an owner’s income, expenses and net revenue based on the store area’s population and demographics. It also provides a break-even point based on estimated expenses and the projected number of turns per day.”
There are several mistakes a buyer can potentially make, according to Ruel. First, maintaining the previous owner’s operation is not enough to guarantee a successful and well-kept store, he notes. “The new owner also needs to do his/her due diligence and request an inspection to ensure that the store meets required standards and/or codes.
“In addition to maintenance and store operations, a new owner needs to confirm the financials are accurate. And when it comes to determining a fair price, the age of the commercial laundry equipment should not be overestimated.”
Check out the competition. Ruel urges prospective owners to visit the area’s laundries, talk with their customers and discover what they like and don’t like. “The only way to gain market share is to take it from another store. Therefore, new owners need to understand how to set their businesses apart from competitors in the area.”
A broker and the CLA are valuable resources to consult when selling a store, Ruel says. Selecting a real estate agent to help with the selling process also cuts down on the responsibilities of the seller. “The real estate agent will ensure the prospective buyer is pre-approved and that the finances are in order.”
The biggest mistake that sellers make, Ruel believes is having unrealistic expectations of what their store is worth.
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].