Buying my first MAT - questions

[Stinger]

I’m considering purchasing my first mat. This board has been a wealth of information. Thanks to everyone!
I’m working with the SBA, and they are impressed with my business plan so far. (Thanks to LMARIES from this board)
When trying to come up with an estimate of what the mat is worth, I have heard a few different ways.
1) Yearly Net X 4-6, is this net before they deduct things like Depreciation?

2) Monthly gross X 12-16

Any opinions on which way is more accurate?

Also the past tax returns show very little profit and almost no money taken out for the partners. I have been told this is not unusual for a cash business. Cash falling out the back of the machines....
When doing a water consumption analyses, it looks like the revenue should be about 15% higher than they are reporting to the IRS. Last year they reported a decline of about 14% from previous years, blamed this on a road closure, but there water usage stayed about the same (actually up about 20K gals.)
I’m trying to get the OK to be there when they count the money for about a two-week period. Do you think that will give a good enough snapshot of the true revenue?

So far my analyses shows the mat to be worth about 175K, they are asking 280K. I guess they can ask what ever they want.

Any opinions would be greatly appreciated

[srhaz]

Values have been discussed here many times, and personally I still don't see how some sellers/brokers come up with a value.

Most work off of gross and add or subtract for machine condition and upgrades, etc. This I just don't get. I don't care if it is grossing 1 million dollars - if after fixed expenses (not depreciation) it nets two dollars - then its not worth 1 million dollars.
Like most business values, I'll take net (before depreciation) and X it by 4 or 5 (6 for new equipment). It makes sense to me and I'm comfortable with it.

I believe water usage is your best gauge.
Gas and Electric have too many variables for me. HVAC, coolers, etc. My gas usage goes up 40% in the winter to heat the darn place.

If his books say little profit - then thats what the bank will give you.

[mike]

Stinger,

I think you have more chance of being at his home watching his wife take a bath than you do of being there when he counts his money !!

[Kitty]

Ok, heres a great question.......why would or wouldn't an owner count in front of a serious buyer?

[Gary C]

Simple - If he is skimming he gets caught.

Gary

[Kitty]

Why would that bother the potential buyer? Wouldn't a higher revenue be better?

[Gary C]

Yes Kitty you are right, but if you are skimming you would not want that to be provable in any way. Later on if the irs came in and made the buyer testtafie about the skimming it would not go well for the seller. Thats why skimming in general is not a real good idea. He can tell the buyer anything he wants but untill the guy sees it himself there is no proof.

Gary

[mike]

I will repeat my "old saw" about being prepared to spend a couple of days at the mat yourself, (or at the coffee shop across the street) with a pencil and paper.

Mark down the number of customers and the number of bags of laundry.
It is the most foolproof way to gauge the volume of business (sales) once you understand about busy days etc.

On utilities, you must rely on the owners figures (see the bills !), some of which you may be able to verify.

A small side note for the newbie,
If you get to "count" with the owner, don't forget, the money is what comes out of the coin boxes, NOT the impressive amount that comes out of the change machines !!

[NJ Jon]

Stinger -

If you are doing a coin count over a two week period, I wouldn't worry about the IRS asking you to testify, as the period is too small, and really can't be projected to a year's income in any accurate manner. It will give you a rough estimate, however.

Ask the other members of the board how much their income can vary from one week to the next. Also, there are seasonal variations that must be taken into account. This is also something to keep in mind when you try to make your own projections. As a side light, if you happen to hit a "low spot", this may be a negotiating point with the seller :-)

Also, there is a possibility that a seller may "salt" the coin boxes to improve his "gross" on the days you are counting.

If you can get coin gross by month for the past year or two, try to compare this to water useage (gallons, not dollars) to see if the two rise anf fall in unison. It won't be exact, but should be pretty close. Any descrepancies should be looked at closely. Also compare the same month coin gross in previous years to the coins counted to see if the count is reasonable.


Some of the other board members have different ways to verify income and expenses. Look at previous postings for these methods, and try to apply them to your mat. The more you know, the better off you'll be.

Let us know how you make out, and welcome to the board!


NJ Jon

[pete f]

NJ.. my thoughts exactly.

[Stinger]

Thanks everone, I'm still wanting to hear if they will let me be there when the money is counted.
I'am going to spend a few day's observing this mat and try to get some idea of the # of loads and in which machines.

I will keep you posted.

Possible new mat owner

[Kitty]

I think from week to week the sales can be up or down around 10-15% of the weekly gross. I wonder how other mats do it, but we consistently count the same day every week and can accurately prove the revenue, however, in order to actually see the average counts you should do at least 3-4 counts with him. Of course, this is only if you feel he is not forthcoming with the correct sales amount.

[NJ Jon]

Kitty -

Without asking for exact figures, can you tell me if the same week of everymonth is within the 10 to 15% range? I've always thought that between the high and low there would be at least 25% difference due to different washing habits in summer, winter, opening of school, holidays, etc.

I know there have been posts along this line before, but I was just curious as to why your business was so steady. Is it also possible that there are regional differences, ie, Mid Atlantic vs Northeast vs Florida?

NJ Jon

[Kitty]

There is no exact science here, we count the same day each week. The customers can change their habits and create a short week one week, but an increased sales week another simply by changing their day of the week.

The sales slide slightly in the summer, and increase slightly more in the winter. But as I said the sales are consistently with 10-15% of each other usually.