TIPS FOR THE SMART BUYER:
First, be alert to what I refer to as “price deviation”. This is a misalignment between the actual value and the asking price of a coin-laundry. More specifically: it is the difference between the better informed valuation of a laundry business insider and the price an industry newcomer is frequently willing to pay.
In many communities it is common to find two or more coin-laundries – a circumstance that places them in competition. Logic dictates that if one of these coin-laundries is presented for sale, the sale would be of interest to the owners of any competing coin-laundry. Such an acquisition typically offers an insider buyer expanded pricing power, economies of scale as to expenses, and quite possibly the convenience and economy of collecting an additional coin-laundry on the same trip to town. As competitors usually know (or at least know how to find) each other, an insider transaction frequently requires no business broker, thus saving the seller a brokerage fee.
Considering the available synergies and the uniqueness of the opportunity, one would think the business to be of considerably greater value to the insider buyer than anyone else – and rather than see the opportunity get away, the insider buyer would be willing to pay a premium for the business.
Why then it is still available? Because the seller is asking a price that an insider will not pay (not even with the added value of the prospective synergies). Instead, the seller waits patiently for an under-informed outsider, who, dazzled by top line (gross revenue) claims will take ill-conceived action and pay a ridiculous price. And as the price paid will be the basis for calculating return on investment, such a purchase price error will travel a very long way.
Moving on: Make an immediate effort to verify the sellers top-line revenue claim. As revenues are frequently overstated (sometimes considerably so), it is best to discover attempted fraud early-on.
As to verification: One ill-advised method is the comparison of claimed revenue to water usage.
It is ill-advised for several reasons: Firstly, it is a relatively inexpensive method by which a seller can perpetrate a fraud by simply running-off water. Secondly, issues such as leaking water and mineral deposits within water meter mechanisms (water meter maintenance tends to be neglected by water providers) can significantly effect the accuracy of an analysis. Thirdly, many commercial washers now offer discrete programing that can significantly impact water usage (e.g., Wascomat “Generation 6” washers can be adjusted, at the sole discretion of the business owner, to utilize 1.2 to 1.9 gallons of water per lb. of laundry – a maximum differential of 58.3%!).
If you insist upon analyzing water usage, you should at least be alert for leaks. One common source of leaking is the water inlet valves in the washers (mineral deposits will prevent the valve from closing properly). Choose a time when there is no washing machine activity and check the waste-line outflow to ascertain that water is not leaking through the machines. As most machines sit idle with the dump-valve open, any water leaking into the machine from the leaking water inlet valve will pass undetected through the machine and into the waste-line. Moreover, accidentally running water, as may be caused by a stuck-open toilet tank flap (especially if it frequently runs all night), can significantly distort a water usage analysis.
A far more reliable, but considerably more complex, alternative to water bill analysis is analysis of fuel usage. It is more complex because it involves more variables, but it is more reliable for three reasons: Firstly, as fuel is far more expensive than water, willful distortions (sometimes implemented by a seller running-off hot water) are cost prohibitive to effect. Secondly, as fuel is not permitted to leak, one need not allow for leakage. Thirdly, as heating the hot water to a certain point and getting the laundry dry requires a relatively uniform amount of fuel, fuel economy initiatives are less effectual, with a correspondingly narrower range of consumption differentials, than those associated with minimizing water use.
When analyzing a coin-laundry, I use my exclusive formulas, which incorporate degree days for colder climates, together with efficiency considerations for water heaters, boilers, and a variety of laundry equipment in order to verify gross sales based upon fuel consumption.
Be alert to seasonal weather changes when evaluating a coin laundry. Both the first week of warm weather in the Spring, and the first week of cold weather in the Fall can excite a 10% to 20% increase in coin laundry business.
People pay too much for two reasons: They are frequently misled by sellers and business brokers to rely upon exaggerated representations as to top-line revenue – and these same people promote analysis formulas that can significantly overestimate the value of the place.
Get the proposal evaluated by Gary, the accredited and impartial expert. It is a far more logical course than suffering the consequences of proceeding while under informed. If you divide Gary’s fee by the sum you intend to invest, you will discover what an affordable percentage of your deal it is.
WHOM CAN YOU NOT TRUST?
Do not act solely upon the opinions of those with for profit interests in marketing and promotion, brokerage commissions, finders fees, or laundry equipment sales – for they are in a position to put their profits well ahead of your needs.
Make it a point to discover everything a “consultant” has an interest in before acting upon his or her advice.
BEWARE THE LETTER OF INTENT
Sometimes referred to as a “Term Sheet” or, “MOU” (“Memorandum of Understanding”). These are typically, but not necessarily, non-binding written expressions that set the stage for discussions with and disclosure from the seller. They are rarely used to make offers (although the average business broker would have you think that this is their sole purpose). In any event, all of my clients get a copy of my recommended “Letter of Intent”, which is constructed to get you the information you must have in order to present an intelligent offer without creating legal problems for yourself, or the loss of your funds – and in the process, I will very likely introduce you to some relevant issues that you have not been thinking about.
DO NOT UNDERESTIMATE THE POWER OF FIRST IMPRESSIONS
First impressions have a significant impact upon relationships. So first improve your knowledge and empower yourself to ask incisive questions that will earn you the respect required to enlarge your space in any deal…And my Vital Info Pack gives you the ability to do exactly that.
MY LEGAL COUNSEL IS INCLUDED IN MY FEE:
My consultation fee includes my working with the attorney of your choice to incorporate laundromat specific terms of purchase which will both protect you and significantly improve your deal. It makes no difference where he or she practices law – my purchase agreement clauses will enable him or her to provide you with the best laundromat specific legal representation possible.
In some cases, I am available to personally represent you. Information on legal representation is available from the above menu. You can verify Gary’s N.Y. State Bar membership here.
* As to my Legal Representation Agreement, those who have decided to make an offer on a business located in NY State, and who contemplate my handling the transfer, will note that I offer a small financial incentive to consult with me before making the offer – this in response to the constantly recurring desire of new (suddenly much better informed) clients to change the terms of their initial offer.
A FEW WORDS IN CLOSING:
As laundrymat principles are universal the above is applicable to any laundermat in any area. However, although this piece was calculated to be informative, it should not be regarded as comprehensive; it is not. Fundamentally important issues such as: business analysis techniques that are unique to laundromats; specific terms of sale that are unique to coin-laundry transactions and necessary for the protection of launderette purchasers, including the transfer of laundry machinery in excellent running condition; laundry mat marketing and demographics; and many other issues unique to laundromats are not even touched upon here.
The above is presented as a public service by the author, Gary Ruff. It is based upon his wide experience in the coin-laundry industry. As the information contained herein is based upon his own experience, the author reasonably believes it to be reliable. However, you use the information at your own risk.
You are invited to download more information on Gary’s availability as both a consultant and lawyer .
Consultation Service Package: Full analysis and consultation services (U.S.A., Canada and Europe).
Legal Representation: For a business located in N.Y. State.
You may also wish to visit Gary’s “Question and Answer” page.