GLENDALE, Ariz. — The most important thing I learned from buying and selling my laundromats was to start early. By that, I mean develop an exit strategy before you even buy your mat.
How you sell your store will depend on some factors. If you own the building, you can choose to sell only the mat. You can offer a tempting lease that can greatly enhance the selling price of your mat. You receive the sales proceeds from the mat as well as the ability to collect rent as landlord for years of future income.
As the owner of the building, you’ll understand the needs of the buyer, so you can attract more buyers. I’m not saying that you give a sweetheart lease, but it should be somewhat lengthy. Due to the capital-intensive nature of our business, buyers need long leases to be willing to pull the trigger on buying your mat.
Anything less than 10 years is not attractive to most buyers; some buyers want a minimum of 15. In some less desirable markets, landlords may be willing to lock in a buyer by offering a lease of 20, 25 or even 30 years, with options.
Smart commercial landlords will give a fairly decent lease in the beginning, 10 or 15 years to lure you in. When it becomes time to renew, that’s when the attitude changes. Landlords think years down the road, and so should you.
At one of my locations, I got a long lease, fixed up the mat, and business was great! However, as time went by, the demand for empty stores in that area grew tremendously. Landlords grew arrogant, knowing that if a tenant didn’t agree to their new term, they’d just get another tenant.
My landlord began offering me only five-year renewals, inviting me to “get out” if I didn’t like it. I wanted an anti-demolition clause added to the lease at one time to protect my store if he decided to knock the building down for a new one. Same thing: “Get out then. Nobody tells me what I do with my properties.”
He promised, but not in writing, that he “will help (me) out when (I) eventually sell.” I always renegotiated leases years before they were to end but this landlord refused to extend until the last two months. His “helping out” was simply giving me a 7-year lease to sell. The short renewals also prevented me from upgrading the store with new equipment.
So, if you can, buy the building!
You may be able to put together an investment group to buy a building or shopping center, with your mat paying the going rate and, through written agreement, receiving some kind of major benefit that doesn’t hurt the group. For instance, as long as you own the mat, you’ll always be able to renew your lease for 15-20 years at a time at the going market rate. You can offer to be the “superintendent” for the entire shopping center in return.
If you decide to buy a mat that offers a lease only, make the agreement is “sales-friendly” when it’s your time to sell. Canvass the stores in your target shopping area to find out how the landlord operates. You probably won’t get much out of the seller but you may get some useful nuggets from other tenants.
DON’T FORGET THE CURB APPEAL
Just like selling a home, you want curb appeal to help your store. Many homeowners have their houses fixed up to “stage” them for selling. In the same vein, you want to wow anyone who’s interested in buying as soon as they lay eyes on it.
While the curb appeal principle is similar, I would wonder why a mat owner didn’t keep curb appeal at a high all along so he could boost income while owning the mat. Nothing boosts curb appeal more than having a clean, beautiful storefront and sign, with automatic entrance doors.
How do you wow a buyer? Fix your mat up at least six months, or even a year, before the sale, so you can have some to boost your revenue and get a higher selling price.
It’s more important than you may think. While your income goes up in that six-month period, the sale price will be magnified by the sales multiple, which is usually somewhere between three and five times your EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).
If you let your mat get even just a little run-down, it’s now or never to clean it up. I’m not saying you must buy new equipment in order to sell your mat, but I’ve seen it done. Most people would prefer some kind of turn-key operation, combined with an agreed period of time when you would advise them to them succeed and perhaps issue some promissory notes to help them with the financing.
If you’re trying to sell a rundown store, will offer no other help and demand cash, you increase the odds that your buyer will back out … and he just may decide it’s better for him to build a brand-new mat near yours.
Check back Tuesday for the conclusion!
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].