RIPON, Wis. — “Plans are of little importance,” Winston Churchill once said, “but planning is essential.”
Of course, Churchill meant that plans are often not enough. Instead, you must plan for any situation that may come up. The same is true when deciding on an exit strategy or succession plan for your coin laundry business.
Besides selling your coin laundry business when you’re ready to retire (which I discussed in Part 1), another popular option is to have someone in your family take over your business. A lot of coin-operated laundries are passed down to second or third generations. But planning is again key, just as if you were selling the business outright.
You know your family members best, and can probably tell who has the aptitude, work ethic and interest to take over the business. Take the time to identify who would be a good fit, since you want them to succeed and be happy. Once you’ve identified a family member or two as good candidates, ask them if they want to do it. At the end of the day, if it is something they are not passionate about, it will probably be difficult for them to be successful and could create friction moving forward.
But if that family member or members say they are interested in taking over your business, get them involved in all aspects of the operation so they have a better understanding of the coin laundry business. The most important part of this process is having open and honest conversations about what it will take and how it will work. Whether it’s your son, daughter, aunt or cousin, build in time before you sell to teach them the business.
That means having them involved in the day-to-day operations so they know exactly what they are getting into. Maybe make them a 50% owner in the company at first. The good thing about doing that is you can involve them in financing for new projects or equipment, and that will help them build up their credit history with a finance company. While this may seem like a long-winded process, the more time you spend preparing them for the takeover, the better things tend to go.
THE TAX PERSPECTIVE
No matter what your exit strategy is, there will be tax implications based on the purchase price to consider for both the seller and buyer. What amount of your sale price will be allocated toward equipment, what will be allocated toward goodwill, and so on. Those kinds of things can be shifted toward the buyer or seller. Prior to listing the property, you should work with your accountant to determine how to properly allocate the value of the purchase price and determine what is the best strategy from a tax perspective.
You’ll also need to decide how you will sell your Laundromats. Will you put it up for sale by owner? There are pros and cons to consider. The pros are that you will save on costs and brokerage fees; the cons include a longer time period to find and identify qualified buyers, making it difficult to sell your Laundromat quickly.
Or you could sell your coin-operated laundry business by working with a broker. Some brokers specialize in Laundromats and know of a pool of potential buyers. They also know what to look for in Laundromats to improve valuation. But you will pay a fee for brokerage services, which usually depends on their expertise in the field and how much value they bring to the table.
So where do you find a good broker? You can start looking online at websites like BizBuySell.com. Many distributors throughout the U.S. will also have a brokerage arm or can give you recommendations on finding and identifying a possible broker to partner with. Most laundry owners have a relationship with distributors in their area through equipment purchases or parts. So they should be able to help you find and identify some possible broker partners.
Make sure you also keep detailed records of your finances; while this is a good practice for all businesses, it is even more important in the coin laundry business since it is mainly a cash business.
Reach out to your lender and get them involved in your exit strategy or succession plan. You may have a well-qualified buyer, but when it comes time to do the acquisition, a lot of times decisions are based on the value of the Laundromat. So, work with your lender so you have an understanding of what they can help with, such as valuations, or letting you know what they can finance for a buyer based on his or her qualifications.
Miss Part 1? You can read it HERE.