First time buyer

[Anonymous]

Hi everyone.

I am glad I found this forum. I would like to ask you for your opinion since i am a freshman in this business. I am on the market for a mat in the Boston Area. I actually found one that looks interesting. It is located on the plaza with parking and is next to the fire station.

My broker is kind of annoying, so I can't rely on him too much. But this is the information that he gave me.
Operating hours are 7 am to 9 pm. Sale price is 130k. Gross profit is 150k. Expenses are 56k (includes rent at 2640 per month). Net is 94k. All equipment is kind of old, but everything works. Each machine is $1.75 per wash and dryers are 7.5 min per quarter. There are 3 employees (I am not sure if that includes the owner) that do WDF.

I went there 3 times already, talked to employees and guys at the fire station. They all say that it is very busy.

If i get to a condition where i am ready to give an offer, i was thinking about giving 110k to begin. Also, I can pay this amount through combination of cash and equity line.


I just want your opinions, please. Anything i should think about or check out? Please inform me.

Thank you.
Zhenka

[mike]

Get a complete breakdown of individual expenses,

It does NOT net 94k !

That 56k expenses does NOT include employees, it should, if the gross includes WDF.
It is probably just rent & utilities.

Don't forget repairs/replacement ($1k a month)

Find out about lease length, the longer the better, (get it in writing with the landlord before you buy.)

[Anonymous]

Thank you for your reply.

My broker said that expense includes repair. I am not sure about the labor thought. Also, my broker told me that i can not get detailed expenses until i make an offer. Is it right? How can I check how much this place really makes?

thanks

[MSKLAUNDRY.]

I usually don't post messages on this subject but if it makes 94 k net and he is asking 130, let me know where it is and i would buy it along with the rest of this board. LMAO

My opinion is that if a seller is unwilling to provide any and all documentation on income and expenses then I would stay away.
They should provide you with whatever you need to make a informed decision. Anything less is a big Red Flag. BEWARE!!!

Common expenses are:

Water
Electric
Gas
Telephone
Rent/RE taxes
Equipment repair
Labor
local/city permits/licenses
Garbage
alarm company if any
Sprinkler systems checks, as needed if equipped.

These are just the costs that come to mind.

My guess is he is not telling all.
Place probably makesunder 40 net, if that.
Perhaps he know of something or someone opening a mat nearby and wants to get out before they open?

No one making 94k sells for no reason!!!

Think about it!!!

[Anonymous]

That is great info. thanks.

I want to clarify... Do I need to give an offer to get the information you have listed? Or i should be able to get it upfront?

[Anonymous]

You definitely DON'T have to give an offer on something with a value to be determined by the info. you're requesting.This info. should be given unless somethings a miss,BEWARE.94k net can't be right!

[pete f]

You can make an offer contingent upon income, expenses, lease, and equipment inspections to be to your satisfaction.

[MSKLAUNDRY.]

You say "your broker" but really who does he/she represent the buyer or seller. Personally, I would deal directly with the owner(s) and tell the broker to take a hike.

Is 95 k net is what the owner said or what the broker is saying?
Brokers will just about say anything to get you interested.
If you know for a fact that the owner said 95 k net then in my mind I would have a hard time beileving anything else the owner said after that unless he can back it up.

My feeling if you bs'ing me early on, then whats to say you won't continue to bs me in the future.

Again Beware!!

Let the owner provide you with something before you give any bids. Act disinterested and be prepared to walk if he doesn't play ball. You might be happy you did.

[Anonymous]

Broker will get paid by the seller. So that answers whose interest he represents. I am getting really irritated with him because he does not provide accurate and sufficient information. I told him that i am going straight to the owner, which he objected too, referring to the non-disclosure agreement.

Also, I have seen this place 3 times already, and so 2 different employees working at the WDF counter. Employees told me that the owner is there everyday. However, when I asked my broker to fill me in on the operation of this place, he said he was told that the place has no WDF and no employees. Weird.

[srhaz]

Sounds to me he left out the payroll as expenses. Is it the owner or his family working there? Perhaps he is paying them cash and worming his way out of it.

As stated before, have the offer contigent on a)lawyer approval and b) inspection of his records.

Then again, if there is no honesty now, whats to happen later on!

[MSKLAUNDRY.]

DO YOURSELF A FAVOR AND WALK AWAY!!

If the broker doesn't know what he is selling than that shows you what kind of people you are dealing with.

Yeah, He probably pays everyone off the books so technically there are no employees, but you can't price a store based on that. So he saves a little money on payroll, but he cannot deduct legally the off the books payroll as expenses. How much do you really gain?

Sounds very shady

[mike]

I would really try to find out more from the "employees"

If they aren't family, a few bucks should accomplish that,

Perhaps offer them a small % of the WDF, if you take over, they could be on your side, but trust no one completely !

[cesar]

I have been looking for a mat around Boston for almost a year and I try to find deals where no brokers are involved but it takes a lot of work to find those mats.

In this situation you do need to make an offer.
The owners information is private and he can put any stipulations on giving it out that he wants to, there's no law that says he has to show you anything. You can get alot of information on your own like water bill info, you can get that from the MWRA, customer count, you already have the machine count, prices, rent).

One of the problems is dealing with a broker everything has got to go through them once you sign a confidential non-disclosure agreement and they don't have to give out any information if they don't think your a serious buyer. Even if you are a serious buyer they may not give your offer to the owner, the only interest they look out for is their own and I mean theirs' personally. (I have a few good stories about brokers). But unfortunately you have to deal with them for a lot of mats being sold around Boston.

Have your documentation for your financing ready and make an oral offer, nothing written. Tell the broker your offer is contingent on all the information being accurate, it probably won't be. Then if your really interested in the mat you can make another offer.

It's a big game with these guys.

[Anonymous]

They are definately not family. They told me that. I am going there today after work and i will try getting in touch with an owner.

[ajay]

someone I know recently sold his store ...the buyer verbally ask for cash flow info, and then both parties agreed to a price. He left and came back with $500 dollar check and a contract to verify income to his liking which included 3 weeks of quarter count. the seller also contacted utility company etc.. to get expenses information. Once everything was satisfactory, they agreed to a closing.

It was easy and very professionally conducted.

With all due respect to sellers, it is a cash business. So they do tend to mis-count. This is a quick short formula to do the math in your head:

gas and electric - 12 -18% of gross( I use 15%)
water - 10 - 12% of gross( I use 10%).

even faster is to take 25% of gross and that's your utility expenses.

Do take machine condition under consideration when offering your price, but you're mainly paying for the customers. machines by themselves don't mean anything.

To me, price doesn't matter. As long as the cash flow is there and if the business can be paid for within or close to 1 year.

Ajay

[Anonymous]

AJAY I agree with everything you say except the last line about business paying for itself in one year. How can you expect that when most mats sell on the basis of a multiple of net income in the range of 3-5. If you pay 3 times net, doesn't it take 3 years to pay for the business?

[pete f]

I would caution going around the broker. The seller hired him for a reason, he did not want to get involved directly. The broker represents the sellers interest, it has always been that way, even the house you bought. SO get over it, and back to the deal.
Do you like the location, is it handy to you to run? More or less what you are looking for? The make your offer contigent upon the things mentioned earlier. The employee thing sounds off the books, but you will find all this out in your due dilligence. IT still may be a valid place to own after you pass thru the smoke and mirrors, it may be a nightmare. The location to you, and your gut feelings should guide you. I think the place is in the 40's cash flow wize myself. mats sell for 2 to 5 times cash flow, so the price is not out of line in that respect. You have to figure if the place can make money thet way you want to run it.

[Fred50]

My first step would be to call the bldg dept in the town to determine if someone has submitted plans to build a new mat.

I would not give a written offer just to get the true expenses. The true due diligence could wait for a written contract with contingencies.

I for one would not sign any legally binding agreement without at least getting a lot more info. That includes not giving a deposit check either!

I could understand the seller not wanting to disclose info, but you did sign an NDA, so what's the problem?

How about presenting the owner with an LOI (letter of intent) that states an offer price based upon the limited info that you have with your personal balance sheet attached? It would show that you are serious, but it would be at no risk to you.

Good luck!

[Fred50]

On second thought:

I agree with Pete F (again, do you believe it?). Don't go around the broker. It would most likely backfire. The owner hired a broker to weed out people that are not qualified or truly interested. If you approach the owner directly, he's likely to blow you off altogether.

Does your NDA state that you can't visit the mat unescorted or that you can't speak to the employees directly?

Be careful!

[cesar]

I would listen to Pete f, also. If the seller contracts with a broker he pays commision whether he sells the business or the broker sells. Would you hire someone to do a job and then do the work yourself?

The other issue is legal. Here are segments from two non-dis contracts I had to sign.

"Further, i agree not to contact the sellers of the businesses directly but to channel all negotiations, inquiries, investigations, and purchase offers, if any, directly through Lee Associates. I agree to NOT HAVE ANY CONTACT EITHER DIRECTLY OR THROUGH THIRD PARTIES WITH THE SELLER."

The BOLD is how the contract was written. Here's another.

"I agree not to contact the Seller, the Seller's employees, suppliers or customers except through the Broker. I understand that the Broker has an agreement allowing for a commission for the sale, trade, lease or exchange of the business or property and I agree not to circumvent the Broker's listing agreement in any way. I further understand that any attempt to circumvent such agreement may cause the Broker serious damages for which I may be liable. Therefore, I agree that directly or through agents, employees or representatives, not to engage in any negotiations, dealings or other acts, which may result in the diminishment or avoidance of any commissions due Broker under agreements between Broker and Seller.

Read your non-disclosure agreement

The other issue isn't even the legalities of going around the broker. If you try to go around them, one way or another their going to find out and they are the deal makers or breakers and if you piss them off they won't even consider your offer.

Don't rewrite the rules, just play the game.

[Anonymous]

Thanks for your responses. I am not planning on going behind brokers back. I just wan to get the information that I need. I told my broker that I am going to the place and will talk to the owner or employees. Broker did not object.

I have a feeling that this mat relies heavily on the WFD rather then on walk-ins. That is something that I do not want. However, so far no one confirmed my guess that is why I want to talk to the owner.

[pete f]

I will agree with Mark, and it is how I have bought all my mats. I use a letter of intent detailing what I want. At times I have attached something to make them realize I am serious. Most of the time the letter of intent gets them to realize it is an offer, and the info starts flowing.

If you do not want w/d/f then this mat is probaby not for you. On the other hand, maybe. I think a good way to judge how much w/d/f they do is simply look at the storage area they keep the finished work and work to be done. If there is alot of stuff I would say big w/d/f if a few bags ready to be picked up I would say not much. Same for stuff from the dry cleaners. Maybe the w/d/f guiys here will say how much "inventory" of customer items is normaly left around. Ie, days worth by the pound . If there is 100 pounds sitting there it did not all come in on 1 day. That would give you an idea of w/d/f biz. Simply ask to see the tickets for the week or month. There are other ways to investigate.

[cesar]

Does anyone have an example of a letter of intent they can email. Or how is it worded and what information did you put in your letter of intent.

[Anonymous]

I called the Town Clerk's office. They said no new licences for laundromats have been issued since the beginning of the year. One laundromat in this town has been purchased by a new owner.

[Fred50]

Zhenka,

Licenses are probably for NEW mats that have completed construction. I would go to the bldg dept or planning office to see if anyone has submitted plans.

DO YOUR HOMEWORK!

[Anonymous]

ok. will do. thanks

[Anonymous]

ok. no new plans have been filed with building deparment either.

[BWJR]

I agree totally, do not go around the Broker. He or She controls the deal and can throw the sale to another buyer with a little manipulation. Believe me it happened to me over 20 years ago that a broker played games and forced the price up by playing one against the other. Its a long story, but it cost me an extra $4000.00 in the sale price as a buyer. I could have sued everyone, but the bottom line was that i would have lost the opportunity to buy the laundry, which as it turned out was a great value and investment. My Attorney's advice was to make the decision based on what would be the best for me in the long run. Do not cross the Broker.

BWJR