Need Help Analyzing Mat

[mikemc152]

I have been doing some research, reading all the threads, and have been gaining knowledge about owning a laundromat. I came across one in my area that sparked my attention and here is what I have gotten from the broker so far:

Asking: $79,000
Gross Sales: $150,000
Net: $75,000
The owner has IRS financial statements supporting all of this, as well as bills for water, electricity, heating, cooling, taxes, insurance...will provide after offer is made
It is owned by a husband and wife who have been in business for 20+ years and they are moving to Canada. The mat has a wdf component. The coin-op and wdf each produce $75K. The lease is $2200/month ( i haven't found out how many years, but will)
taxes are $3200. 22 washer (14 toploaders, 8 front load)
and 14 dryers. some are 3 years old and some are 12 years old, i will have to check these out when I go and take a look. and the only competition is 7 miles away in the next town over. I guess my questions are what now? i know i need to go spend some time in the mat, but after i'm sort of lost. thanks in advance for all the help! Mike

[Kitty]

I do not have a calculater handy, but does this add up to more than 8 tpd with a 50% profit rate?

[mike]

As Kitty points out, that seems to be a high gross for that amount of equipment.

It also seems like a high rent for that equipment, Is half the store empty ?

You'll find that after you make your offer, the backpedaling on the tax returns will start, I predict you will never see a tax return that says $75,000. a year in WDF (not that it can't be done,)

p.s. If they're coming to Canada, I have some advice for them, DON'T !!

[Anonymous]

The numbers are probably right on the money. The problem is the husband and wife are probably the employees and are not showing wages on the P&L. When you factor that in you will find there is a meager return.

[Kitty]

IF they net 75K why wouldn't the purchase price be in the 3X net + asking price range?

[Anonymous]

It is, they have factored in the employee cost. They can ask whatever they want in any range, it is up to the buyer to evaluate the operation and make an offer based on that evaluation - not on what an owner asks. If I ask $20mm, does that mean my store is worth it? Only if I find a very stupid buyer.

[Kitty]

Isn't payroll expensed and the net is the figure after expenses? Or are you saying they eliminated payroll from the expenditures?

[Anonymous]

I'm saying that they are probably putting in hours but not taking a salary thus they are not recording that as an expense, so their net is higher than it should be.

[Kitty]

So, the net (attended), would be around 20K a month?

The gross still sounds high with that amount of machines. 8 tpd would be a cash king in most markets, don't you think?

[NJ Jon]

Kitty -

You can have an expense and not claim it. If they have a Sub-S corp, the bottom line goes right to their 1040 earnings, so why add on extra taxes like Social Security, Disablilty, etc. Especially if they are going to sell the store, less expense equals a better bottom line.

Also, here's one that almost caught me on a Due Diligence - The PO never turned on the heat or Air Conditioning. Did wonders to his bottom line.

If I ran the store WITH heat and AC, my expenses would have soared, and I would have wondered why my bottom line was suffering.


NJ Jon

[Winston]

Do the sellers have other business income? If so, make sure they are not funneling it into the mat to inflate gross income.

A small run down convenience store (about 1500 sq ft) next to my laundromat is for sale. I rarely see anyone come or go, and the owner is absentee. The owner claims $350K gross, proven on tax returns. Do you believe that??

[CharlieS]

$350K gross would be a barely moving convenience stores. The ones I have seen on the market around here do 600K to $1m per year. And those are the country stores.

What Kirby is trying to say is that the owners have not included the cost of hiring labor to replace their own labor. If they are truly doing 150K per year, with 75K in WDF, then they will need about 50 to 60K annually in attendant salaries to include. At 50K in salaries, this store is 3 times net of 25K, which may not be a bad deal.

I would certainly delve further into this store. It seems to have nice demographics, a lack of close competition, and possible improvements to increase business. If the WDF rate is low, I would hire attendants and raise it. I would rather do less business at a profit, than more at a loss or break even. Keep researching.

Charlie

[mikemc152]

I'm getting a little lost with all your responses, but thank you for your input. what i am getting out of this is they are not recording all their labor costs-thus producing a higher net. yes, it is run by the husband and wife so this might be what's going on...so, if i were to hire an attendant, my expenses will be more b/c i will have to expense their labor rather than myself doing it, right? also, kitty, can you explain in more detail the formula for finding the amount of money per wash or 'turns per day'? i need to check some more of the threads for this. thanks for all the help!

[Kitty]

I simply took the amount of machines you list and gave them an average wash price. Tops 1.50 and, not knowing the size of the fronts, I settled on 3.00 a wash. Total the washes, and 50% of that total for dryer money. I took the total of 69 bucks per 1 tpd use. The national average of tpd is 3.5 I think. I calculated 4 turns per day for an approx daily revenue of 256 and times by 365. I only calculated a revenue of 92K TPD is an average daily turn, however there are little tpd during the week. Most turns are done on the weekends. More biz on nights then days. Thus the biggest reason for a wdf service if your market warrants the service.

If this stores revenue suggests this mat does average 8 tpd there is a lot of use during the weekends. Be sure you visit during the weekend to verify the traffic. Be sure to research the possibility of another mat coming in. There are alot of other things to cinsider and research regarding this particular mat befoe you really can analyze the possibility of a purchase

[pete f]

The mat sounds like it has a good base. It also sounds like a mom/pop store, so do you have a wife to do the w/d/f?
This is one of the problems I have come across when finding a decent store that has a big w/d/f. In this case it looks big enough to actually hire someone to do it and still make some money off it, but of course that makes the return that much less for the NON working owner. If it is close, and you have a wife you can put to work or are willing to make a much smaller return on your investment, then possibilities are there. I kind of agree with Chariles thinking, I would persue further, but know about the labor issues. If I could make 75k a year doing w/d/f I probably would actually work at one of my mats! *until I got a wife (hehe)

[Kitty]

Takes a damn good wife to buy a mat and do a bunch of WDF all day long.........NO WAY!

[CharlieS]

I've folded more than my share of Victoria Secrets underware. I'll hire people to do that job. Figure in the labor. Work from there.

Charlie

[Tim]

I calculate turns per day as just over 3, using Kitty's assumptions of $1.50 and $3.00 for TL and front load vend prices and 50% for dryer revenue, based on $75,000 of revenue from coin operation.

Next step is to do a water consumption analysis - this is where I've frequently found big discrepancies between claimed revenue and actual water use. But how do you verify WDF revenue? Do you calculate how many pounds of clothes are washed (based on the price per pound), then make assumptions about how many pounds per washer load, to calculate TPD? Seems like the assumption of pounds per load could cause a wide variance in the result. Are there any standard ways of verifying WDF revenue using water consumption?

Tim

[pete f]

The wife comments are valid. Many mats in my area with reasonable w/d/f are run by the better half.. Take out all that free labor, and now you got to pay for those shopping trips, it changes the value of some mats... that is the point I was making.

[mike]

Do you occupy the entire 4,000. sq. ft. ground floor with your store for the $2,200. a month ?

If you do, then that, plus the $1,000. for the apartment (that seems high to me) does not cover the purchase price of the building. Something is out of whack !

If there is another store, what is it's rent ? (and area)

$2,200. seems like a good rent for 4,000 sq. ft. but it won't stay at that long.

Rents always rise to make sense of the capital cost of the building eventually.

You have space to grow that revenue in 4,000. sq. feet

[mikemc152]

how do you figure? $365,000 at 8% for 30 years is $2,678/mth.
$2,200 + $1,000 =$3200

[Anonymous]

That is a no brainer if you are interested - you make an offer, which of course is contingent on A, B, C,...etc. No skin off your nose to do that, then you will have the data that you need to make your analysis.

[NJ Jon]

Mike -

Before you think that this building will pay for itself ( based on your prin & int payment calc.), add in real estate taxes, mortgage insurance, personal liability insurance, fire insurance, monthly building utility costs, etc., etc. Also, you'll have to set aside money to pay next years taxes as they come due. Don't forget to add something for repairs and renovations ( for the building, not the mat).

You might take a look at what your mortgage company adds on to your home mortgage to get an idea of what I'm referring to.

Don't forget to include in your calcs the rental value of the basement, if you can bill that out to some one else, otherwise, it'll have to go against the mat.



NJ Jon

[mikemc152]

NJ Jon-
I agree about the taxes and repair costs, but if anything i would probably come close to breaking even, while building equity over the years. I was looking at acquiring the real estate for the equity, not the cashflow each month, but i agree with what you are saying.

[NJ Jon]

Mike -

There was something I forgot to add -

Cash flow is different from what you report to the IRS.

Depreciation reduces income, so you can be cash flow positive, but declare a loss for tax reasons.

Just understand that when you sell the place, the depreciation you took over the years gets added back to calculate capital gains. Talk to an accountant, and make sure you get all the figures in alignment before you commit yourself.

NJ Jon

[CharlieS]

If you can buy the property for anything near the current rent, then, by all means, do it.

If your lease is triple net, meaning you pay the taxes, insurance, and maintenance, then the only comparison you need to make is the monthly payment. Your rent will surely increase, you would be building the landlords equity. If not triple net, then you need to add in the other costs of ownership. But, I would absolutely be willing to pay a premium to own the property rather than rent. This makes this deal far more attractive to me.

Be sure to take a good look at the property. If it needs a new roof, siding, or other major repairs, plan for them now. Look for opportunities to create other income producing areas of your property, particularly from currently unfinished areas, such as the basement.

Add a due diligence clause. Here's an example of a simple clause. This requires the seller to provide the financial information you request, and gives you the out if the numbers don't add up.

This agreement is contingent upon the Buyer being satisfied with the results of a due diligence investigation. The Seller agrees to provide documentation and information as requested by the Buyer during the due diligence investigation. The contingencies outlined are to be fulfilled by the Buyer prior to xxxx, or settlement, whichever occurs first. After xxxx, if the sale is not yet completed, the seller may terminate this contract by requiring the buyer, upon 48 hours notice, to either terminate the contingencies and proceed to settlement, or terminate the contract. If the buyer does neither, the seller may terminate the contract.

Not a great example, but it does lay out the idea.

Charlie

[mikemc152]

The 22 washers and 14 dryers are speedqueens. Does anyone know anything about this brand?

[ajay]

sure! what would you like to know. They are no different than any another washers - SQ are one of the 3 top guns of washer family. on this list, it's mostly wasco that's described as #1 - because of its support. Maytags, SQ, dexters can also be #1 - again depending on who you talk to.

ajay