View Full Version : Project new income
08-17-2003, 12:42 AM
How can you accuratley compute what a new mat may do in a certain area........any guidlines?
08-17-2003, 07:18 AM
Acurately? You can't - that is why a new mat has a higher risk/reward ratio than buying an existing mat. What I mean by this is that you take much more risk in building in that you never really know if they will come. If they come your reward will be greater as you are not paying for Goodwill (what you pay over asset value). You can make some estimates on what business might be, but until the doors actually open and the customers either flock in or stay away you don't really know. It would be nice if you could just take the distributors word that a laundromat will do 5 turns a day and the more machines you put in the more money you will make - but we know it doesn't quite work that way.
Low Risk------------------------------------------------------>High Risk
Bank CD ----------------> Build New
--------> Buy existing -----------------------> Drug Dealing
Low Reward <----------------------------------------------- High Reward
08-17-2003, 08:28 AM
Are you totally set on building new? It seems to me one of the most appealing things about the laundromat business is the low entry risk available by buying an existing mat. Mats have about as low a sales price v. net income as you can find. So, why introduce all the additional risks of looking for a location, buying equipment, etc.?
Yes, you can get a higher reward as Kirby mentioned, but don't overlook the time you will spend setting up the new mat in your cost estimates (searching for locations, negotiating leases, due diligence on city codes for new mats, etc.) . When you buy an existing mat, you're getting some verifiable information on the mat's viability in THAT EXACT LOCATION. For that reason, and the low multiples that mats sell for, I say find an existing mat. Your experience should help increase margins at most mats, so you'll make them more profitable anyway.
08-17-2003, 08:35 AM
I built new, but that is a different story. My point is that you also should have an easier time of financing an existing mat due to the ACTUAL income as opposed to projected. Don't forget that a seller may hold some paper and with looser underwriting guidelines with less documentation than any bank.
I think the toughest thing about buying existing is figuring out why they are selling. I have found that many were selling because a new store was planning to open up the street and they weren't sharing that info. You have to find this info out yourself.
08-17-2003, 10:20 AM
Why build new?
- When all the local competition are swamped Sunday and still busy during the week.
- When all the local competition know they do not need to maintain a nice store because the people will come anyway.
- No one will sell because of the above two reasons.
These are the reasons I built my new store and so far the rewards are fantastic.
Why buy existing?
- Already established customer base.
- After researching you determine there wouldn't be enough of the pie to go around if you built a new store.
- No reasonable location to put new store.
The area and customer base will determine if you need to buy existing or if you can build new.
It doesn't matter if you buy old or build new, you will need to do your research and determine your costs for both. I use a pro-forma spread sheet that you put in your known costs and then add what equipment you have and the price of a cycle. You can then determine what your break even point would be at Turns Per Day. You can see then if it will take 2 TPD or 5 TPD to break even. Through your research you should be able to make a good estimate on how many TPD you can do.
08-17-2003, 10:44 AM
Im not set on anything, frankly I do not know whether I am coming or going....
I do wonder however, how to accurately figure the "potential" income of an area. Obviously it can be done, and some locations prove to be up to the projections, some exceed the performa, while others never come close. How is this? Im a pretty smart girl, and I am calculating some performas.......and find the break even point very low. But, then how to you figure who will come?
08-17-2003, 12:08 PM
Lady Luck (aka Kitty),
Figuring out who will come is a total roll of the dice. That's one of the main reasons why building new has such a high risk associated with it and why existing stores with an established clientele sell for multiples of net income.
Goodwill includes, or at least it should, the risk that the owner took in building the mat and building up the business. Sometimes you get what you pay for.
Not only is there risk that no one will come when building new, but you have to lay out all of the $$ upfront and go months while building without income and possibly forever without breaking even.
It's not for the faint of heart, and certainly not for those with limited financial resources. Tread carefully!
08-17-2003, 12:17 PM
Duane and Mark,
Did you guys break even yet, if so how long did it take to reach break even?
08-17-2003, 01:03 PM
Open 2 weeks in the first month and the store has been holding its own since then.
Summer down a little with the students gone, but still profitable.
I don't know if it was all my research that I put into it, or just dumb luck. My wife says dumb luck.
Several people (even distributors) told me that adding a 6th store into my market would not work. I saw it differently.
No way a 7th store could survive unless a couple of older ones closed up. I have my eye on one of my competitors store. May approach with in the next year or so to see if they would be interested in selling. All my competitor stores are way down in water consumption since I opened up. One store has less water usage than my own home. I can't see them staying much longer.
I am working on diversifying my portfolio of businesses so it is time to start another business....... Time on my hands is dangerous.
08-17-2003, 01:09 PM
Location, Location, Location!!!!!!!!! If you can find an existing Mat with those three factors and reasonable rent, than buy an existing Mat. Opening a new one is high risk, but where there is high risk there is high reward. Do your homework thoroughly and be patient. The right mat will come along. Did you contact any of the existing owners like I suggested?
08-17-2003, 01:39 PM
Do you know the formula for crunching demographics?
The 2 methods I know of are:
A:# of housholds x % of renters x 25% x average spent per week(ie 2 person per houshold = 10 dollars per week 3 person houshold 12-15 per week depends on you area...etc) x 52 = amount of laundry in that demo ring annually.
B: # housholds x % below 25k per year x 50% x average spent per week x 52
Next you have to figure where are those people doing their laundy currently and figure aout how much of the pie you can get!
08-17-2003, 02:16 PM
Another variable is demographic trends. An area that has been very well served by current laundromats may be changing for better or worse.
08-17-2003, 02:17 PM
Thanks Mr. Clean that is what I needed. Thanks!
"Nother question, how do you figure how much of that pie you can capture?
08-17-2003, 03:19 PM
that part is a little more subjective! However, location location location, and location determines much. You can figure out how far people drive to do laundry depending on the population and area.
I look at .5, 1.0, and 2.0 mile rings being in a relatively dense urban area.
The core business is within 1/2-1 mile, but I'll draw some in from 2 miles. I hear suburban and rural areas go a lot further, but I've no experience in these arenas.
You can then draw concentric circles around your competition and see where they over lap. This is who you're competing/sharing the pie with.
Next you can compare product service and price to determine how competetive you will be.
There are some formulas you can use which assign points for things like:
visibility of sign on street >< 300ft
amount of traffic per day on street <>20k,30k etc
anchor tenants bar=bad,,,, food city=good
you get the idea!
Are you CLA member? They have hoards of info on this kind of stuff.
08-18-2003, 08:24 AM
You guys question, my questions......but you must realize that even though I am very familiar with the day to day operations of multi mats, I am unfamiliar with projecting new income for a new mat. I can accurately calculate income from water usage and I have no doubts with my ability to assess an exsisting store. But, as I said, my area is not like any of yours. We live small town USA, and the mats here have been in exsistance many years, and are serving the area well. Thus, I must go out and seek a location or an exsisting store that meets my potential criteria I have set. When considering a new store, it seems there are no answers and everyone here finds it risky, thus my confusion. If a viable location is found, other than the number game, are you all are in agreement it is too risky of a venture? Or if not, what made you new store builders make the move to such a risky venture???
08-18-2003, 09:36 AM
It is impossible for us to assess your location without being there, we only have your gut feel not our own to go on. As has been said it is all a risk/reward trade-off. Just like buying junk bonds, you can make a killing or get wiped out it just matters which one you pick. Since you are thinly capitalized I would think it more prudent for you to try to hit a single against a little league pitcher rather than a home run off a major league pitcher - not to say you can't do it - but what if he strikes you out?
08-18-2003, 09:56 AM
Did I ever tell you I was on the All-Stars? :)
08-18-2003, 11:13 AM
In that case, you should build a 25,000 sqft mat that will supply the tri-county area ;~}
08-18-2003, 11:16 AM
You guys are all better at deciding if one location is better for a mat than annother but in general buying a building has a few advantages over renting.
1, you control your own destiny.
2, you have more flexibility with your own bldg.
3, you can always set it up and then sell it.
4, if you get tired of the mat business you can always rent it out.
5, 99.99% of the time real estate will apreciate over the
long run, short of some dramatic turn of events
(toxic waste etc.) and give you additional upside.
6, the Tax advantages of buying and owning are significant.
08-18-2003, 06:27 PM
I lived in small town USA, Maine. But small town pop 3500 and small town pop 15,000 are different. 1 mat for every 4000 people? When the old mat was going out of business a local business guy bought out the drycleaner down the street and built a laundromat/dryclean/conveience store. He did alright with the whole thing. I do not see how you can build a new mat in a small town that already has one. Maybe you are in a 2 or 5 mat town, but the numbers are still true, that pie is thinly sliced. The biggest problem is growth factor. Most small towns are not growing, so splitting the pie does not "work in time" Go visit mats, ask about selling, talk to the owners. Hint about building a new one, maybe you can scare them into selling. Buy an existing one, pretty it up some. If you can get the building, and most small town business have a building with them, then your' all set. You are not going to get rich, but your mat should pay for the building which you can sell later.
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