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 FREQUENTLY TO ASSESS?
Should a laundry owner assess his or her store valuation on a regular basis?
“You should always take a look at where your store is at financially,” Dang says. “This can give you important information, such as perhaps you are spending too much money on repairs of certain equipment and it may be time to replace. Perhaps the income is going down and the utilities are staying the same. … It is also important if you may be thinking of selling the laundry in the future. It will be easier to sell a laundry that has consistent income, or growing income, rather than a store that is on the downslope.”
“If you are making money, paying attention to your business and charging a reasonable price for your services, the regular consideration of value is not necessary,” advises Larsen. “The appropriate time to consider an evaluation of your asset would be upon a potential sale or partnership breakup. Otherwise, there are more valuable ways to spend your laundromat time investments.”
“If you’re doing your accounting properly and you’re watching your P&L statement, you’ll be able to determine whether your net cash flow is going up or going down through the years,” says Vassiliades. “But I always recommend, at least every five years, seek out a professional that knows how to evaluate businesses in your particular area. If you’re going to be working on estate planning, you should be doing it a lot sooner than that.”
AMIDST THE PANDEMIC
It’s been more than a year since the coronavirus pandemic first gripped this country. Today, there’s reason for hope as vaccinations continue and restrictions on mass gatherings are being eased where possible.
Still, there’s been an impact on the laundry business, including store valuation.
Vassiliades says there’s been a “noticeable reduction in laundry volume” due to the pandemic, anywhere from 10% to 30%, depending on location. Expenses have remained the same except for a slight reduction in utilities. In order to remain open as an essential business, stores have had to increase expenses in personal protective equipment and cleaning supplies.
“All of this, including, in some cases, a reduction in operating hours, has had a negative effect on the bottom line or the ‘net cash flow’ of each laundry,” he says. “If you were to rely solely on the net cash flow of laundries for the year of 2020, there will be a reduction in the value of laundromats due to the pandemic, if only on a temporary basis.”
Therefore, the truer value of a laundry would be better judged by placing more weight on performance and net cash flow during 2017-2019 and not relying solely on 2020 numbers.
Vassiliades has seen some buyers hesitate to act due to the pandemic, but this has been countered by an influx of investors coming from hard-hit businesses classified as “nonessential,” such as restaurants, retail stores and travel-related businesses.
“There is light at the end of the tunnel,” he says. “Many laundries, especially the better-managed ones, are reporting an uptick in their sales as more and more people become vaccinated and more children are allowed to go back to in-class learning. If vaccinations reach the levels that everyone is hoping for, there could be a real possibility that most laundromats will reach and maybe even exceed their 2019 income levels by fall of 2021.”
The pandemic has driven some in the industry to believe that the self-service aspect of the business is declining and the future is in providing wash-dry-fold and pickup and delivery services. Larsen isn’t among them.
“I don’t accept this premise and believe that as the pandemic declines, the self-service business will be roaring back to life and returning money to all that have been waiting for a virus-free time and better times,” he says.
Dang says the pandemic has made it difficult to value a store: “Many of the stores were severely impacted and their income was not where it was prior to (the pandemic). Since this is something we have never had to deal with before, it is very concerning. We just don't know if the income is going to come back to where it was before.
“It is important to look at the pre-pandemic numbers along with the pandemic numbers. It is also important to look at how the store has progressed through the pandemic. Is it stable or is it on an upwards slope or is it still on a bit of a rollercoaster? All these factors come into play now and the new investor or even a seasoned investor has to look carefully at what the trend is.”
Check back Tuesday for the conclusion, including tips to maximize your store’s value!
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].