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Self-Service Laundry Business Valuation (Conclusion)

Be consistent in operational assessment to stay on top

CHICAGO — Understanding store valuation—determining the fair market value of a self-service laundry business—is key to the investor planning to buy or the store owner looking to sell. American Coin-Op spoke to three experts this month about the topic:

  • John Vassiliades, a licensed real estate and business broker, and principal of John Vassiliades & Co., based in the Chicago area;
  • Carol Dang, whose California-based Elite Business Investments specializes in coin laundry brokerage services and equipment sales; and
  • Larry Larsen, a California-based real estate broker who’s acted as appraiser and consultant in hundreds of laundromat valuations.

HOW CAN COMPETITION INFLUENCE LAUNDRY VALUE?

Every mature industry, including laundry services, faces competition, Larsen says. Smarter, richer and more experienced competitors are now a reality for any laundromat owner compared to decades past.

“Specific to a particular location, the impact of competition can be huge. One of the major surprises of a new owner is to discover that the actual reason your laundromat was being offered for sale is the knowledge that a large, new laundromat is being planned or is actually under construction in your neighborhood.

“As part of due diligence, every potential owner needs to explore any surrounding commercial space that might be in the process to conversion to a laundromat. Potential sellers and brokers often don’t feel the necessity to explain the impact that the construction will have on the cash flow of a laundromat they are offering for sale.”

Competition’s impact can be positive or negative, according to Vassiliades.

“For example, if you’ve got good competition in the area that’s been there for a while, for at least three years, and your store is a good operating store and the net cash flow has remained the same or increased every year, then the competition in your area is really not a factor. What could be a factor is a brand-new competitor moving into your market area and your store not being the best it can be to compete.”

Dang says if the store you’re purchasing is a “zombie mat” in horrible condition and there’s a brand-new store close by, customers will want to go to the nicer store.

“In some areas, competition is just the nature of the game … especially in extremely densely populated areas. If the competition has been there for a few years or longer, then the value of the store is still going to be based on the current income. However, if this is a brand-new store, or a store that has been completely remodeled in the last few months, that could impact the income of that store.

“There are many unknowns with a new store or new remodel. What kind of equipment are they putting in? How does that compare to the equipment in the store you are looking at? What kind of vend pricing will they (have)? Are they going to do massive advertising and promotions? All that could impact the income. It is very important to drive the area and look at all the stores in your surrounding radius.”

MAXIMIZING STORE VALUE

In closing, the experts offered some tips and suggestions for maximizing a store’s value:

Overall Store Condition — “Making sure that your store is clean and brightly lit and free of deferred maintenance and clutter is extremely important,” says Vassiliades. Dang suggests walking through the doors as if you’re walking in the first time: “Is your attendant friendly and greeting customers as they come in? Are all your lights on and working? How does the store look overall? Does it need a good cleaning, or painting, or new floors?”

Equipment Condition — “You really need to make sure it’s operating in fairly good condition all the time,” Vassiliades says. “It doesn’t necessarily have to be new but it should be clean, neat and well taken care of.”

Equipment Size — “Do you have enough larger machines? Do you have enough drying capacity?” Dang asks. “Are you in an area with large families that would benefit from having choices of the sizes of washers and dryers?”

Vend Pricing — “Are you charging enough for your vend prices? Look at your competitors and make sure that you’re in the same range,” says Dang. Vassiliades adds, “You should always be pricing your vend price at the highest possible price to compete in your market area.”

Lease Length — “The lease is extremely important. You really should be negotiating that lease anytime you come close to that 15-year mark,” says Vassiliades.

“If a laundromat owner keeps their eyes on their own business, the professionalism of their staff and their equipment age and condition, the value of a store will be maximized throughout the term of ownership,” Larsen says. “It is a mistake to allow your facilities to deteriorate with an idea of a future renovation. Every month, a wise owner evaluates what needs to be done to make his laundromat appealing.”

Miss earlier parts of this story? You can read them HERE and HERE