Another Buy or Flee Question (long post)

[Anonymous]

Hey ya'll,

I've been running numbers like crazy today (thanks for the ProForma, Duane!). I've found a mat with potential, and think I have a realistic idea of what the current guy's doing (doesn't include his WDF profit margin, since he just reports his washer/dryer income).

The worst thing about this mat is half his income is from dry cleaning done on premises. No employees, and no room in the numbers for any. The dry cleaning is a tough one to figure in, since I have no clue how much water (if any... *dry*, duh?!) to figure into it.

The best thing about it is he's only open M-Sat, 8 to 5. My best guess (until I get C Scheds and broken out utilities) is 1.2 to 1.5 TPD before WDF. Since he has 10 '99 Neptunes (MAH20) and 15 '71 Maytag tops, I left the utils at 25%, making room for the dry cleaning costs. Does this sound at ALL reasonable?

His gross has been dropping by more than 10% a year the last couple of years; the broker says it's due to his health. I dropped in to buy a pop last Saturday, and he's on oxygen, so that's a good possibility (poor guy). From what I've seen so far this year, his gross will be under $25,000, again before WDF profit. Rent is pretty high at around $1000 gross.

He was asking $80k (laugh!), but has dropped the price to $60k. His broker is calling this an asset sale -- based on replacement value! Sheesh.

The lease has just gone mo-to-mo... which is a rather large joke, but until I talk with the landlord, it's another unknown. The broker states the landlord wants a long term lease. I'd have to do some creative bargaining with the landlord to get rent down to a palatable level -- thinking it would be hard to negotiate a % of gross lease on a coin laundry. Maybe something like 60% of current for 2 years, then healthy hikes to reach the current level after 5-7 years, 15 year minimum term.

So, current gross at $25,000, net *maybe* around $7000. Rent would have to be dropped substantially to make it worthwhile, and the price an order of magnitude lower as well. Given his poor record keeping, I'd also insist on a 2 week trial with daily money counts.

The good news is that by adding a time lock, I could substantially increase the TPD, but will have to do quite a bit of advertising to do that. LOUSY signage, and it sits a ways from the street, so not as easy as slapping up a huge "NOW OPEN TIL 9:00 AND SUNDAYS!" banner. Still, I'm guessing (no data, just a guess) that this would eventually up the TPD to over 2, likely more like 2.5.

My goal is to get it to the point where it's mostly unattended, replace some of the tops with 35-50#ers, and open up as early and stay open as late as possible. Obviously have to figure out a way to deal with the dry cleaning and WDF, maybe wholesale it out, if possible.

I'm certainly willing to work hard for a decent return, but if that's much more than a year as a washerwoman, this is the wrong mat for me.

Should I run like hell?

Cheers,
pk

[Duane]

cpk,

Don't run. Keep doing your homework. The busiest day in a mat is usually Sunday and then evenings. By extending the hours and days of operation you are bound to increase sales dramatically. Location is the key, make sure you can get people to come to your mat.


Some things to consider.....

A good DVR (Digital Video Recorder)
Keep it well lighted
Maybe farm out the drycleaning to a local drycleaner. They would probably appreciate your business rather being a competitor.
Since there is already a WDF program in place, keep it and maybe have someone do the WDF for their profit, and you keep the machine money for your profit. They could also do the basic cleaning as part of the deal and handle your drop off drycleaning. (I think someone on this board does this -- care to chime it anyone?)
Good thinking on removing the tops and putting in some big equipment.



Washerwoman..... This will be you. A lot of time in the mat, no way to get around this. It isn't just stop in and collect the money. There will always be something to fix or clean. Not to mention customer issues (see Kirby's customer problem thread...)

Probably 10-12 hours per day, every day for the first 6 months plus. Then maybe 6-8 per day if you have a good attendand for another year. If you are lucky then maybe just a couple hours per day on average (still with a good attendant).


Duane.

[mike]

cpk,

If your predicating your success in this store based on a

"Maybe something like 60% of current for 2 years, then healthy hikes to reach the current level after 5-7 years, 15 year minimum term."

I'm afraid you'll give the landlord a coronary from his fit of laughter !

Try, by all means, (it costs nothing)

but that won't happen

not enough upside potential here.

[Kitty]

Curious?

25K gross 1.5 tpd? am I reading this correctly? If his health is ailing and he is not putting forth much is the cause for such low numbers, what is it you are going to do to bring in the business? You saying that you too will be unattended, sounding fairly absent, even opening on Sunday what is the incentive for the current customers to change to come to your mat? What are the demos of the area, who will be your target customers?

[Anonymous]

Thank you all for your great feedback and questions!

First off, my 'washerwoman' reference seems a bit snotty to me in the light of day... apologies if that offended anyone! I had Tiny Bubbles in mind when I said that... a better way to put that is I want to be a business owner, not buy myself a job doing WDF and dry cleaning.

I've been in property management for years, and have gotten well used to the reality of owning property -- it's not that glamorous either! Lots of being Ms. Fixit. There's a lot to be said for the pure satisfaction of working *on* your own business, but not *in* the business.

So, I think I'm being realistic about what my day-to-day will look like, and in how long I'm willing to do that work. I'm already planning on being on-site 7 days a week until I get some security features in place -- thanks for the DVR suggestion, Duane! I see that you're a distributor, and would love to get an estimate from you on a small system. Will also need time locks for the door -- anyone know where to go for something to turn off some of the lights (warning of the lockdown) on a timer?

This is already getting long, so I'm gonna break this up into smaller bites... :)

Cheers!
pk

[Anonymous]

Kitty,

Yep, you read that right. 25k gross is what this year is looking like, somewhere between 1 and 1.5 TPD. These are my estimates, not the owner's, and given the paucity of hard info, subject to lip-curling skepticism.

Area demos are low-middle to middle income, about 50% rentals. There are a couple small apartment houses, but most of the rentals are houses. The closest mat is 3 miles away. This is on a major artery, serving income brackets from upper-middle to very low. A good percentage of the target customers frequent the biker bar and the Bingo parlor... :D.

I'm planning on being there every day to get to know the current customers, and have them get to know me. I need to learn this business, and I can't see doing that without being there every day. So it's back to 80 hour weeks for the foreseeable future -- but the Laundry gods willing, only for the next year or so. (Most of us can do something really uncomfortable for a while, but only if we *know* when it'll stop.)

Since the signage is such a joke and the whole strip is set so far back from the street, I'm looking into the price of renting one of those big, tacky, lighted signs to put right out by the street. Of course the landlord might have an issue, but given the glut of commercial and retail space in my town, he'd be an idiot to disallow a tenant from improving traffic. Also need a HUGE banner draped over the front door announcing the new hours.

My fiance', son and I have been brainstorming on what we could do to get the folks in. If I could afford the CCI system right now, I'd hand pre-charged cards out like nuts -- give some to the Bingo Parlor to use as door prizes, etc. I once started up a copy/fax service from scratch, and the only advertising I used was an insert in the local paper targeting my area -- it was like turning on the lights. I didn't even include coupons! Unfortunately, this is a MUCH bigger town, and I'm afraid inserts just get tossed here.

Cheers,
pk

[Anonymous]

Originally posted by mike
cpk,

If your predicating your success in this store based on a

"Maybe something like 60% of current for 2 years, then healthy hikes to reach the current level after 5-7 years, 15 year minimum term."

I'm afraid you'll give the landlord a coronary from his fit of laughter !

Try, by all means, (it costs nothing)

but that won't happen

not enough upside potential here.

Hi Mike,

You're probably right about the landlord, but who knows... :) What do you mean by not enough upside potential?

Thanks for the input!
pk

[MSKLAUNDRY.]

25k gross, WHAT!!!

The way I figure it based on your #'s is that you are making less than $85 a day, GROSS!!!!. Are you kidding. I am not sure where you are located but you would probably be better off working in Micky D's for that money. What are you trying to prove here that you can double what the place gross. Even at 50 k, your expenses are going to go up and what is your net going to be a few g's more maybe. Don't forget about debt service with all your upgrades.

Did you factor in repair cost, both parts and labor. Even if you fix it your self parts aren't cheap and your parts warranty on the Neptunes is up. Motor controller/ motor upgrade is about $150 and you will sooner or later need it. Door gasket, latch assy. Parts costs add up, did you factor that in to you equation?

In my opinion he should be paying you to take over the place, LOL
Just kidding!!! The '99 Neptunes are the only thing that has any real value as the '77 washers aren't worth much, maybe $50 each, How old is the dry cleaning machine and does it meet cuurent EPA standards, Just because he is using it doesn't mean is it is up to acceptable standards.

I have a friend that gave away a Bowe permac machine because he couldn't use it in NYC anymore, well he actually made more money sending the clothes out anyway. So the machine the owner has may have very little or no value.

You didn't state what dryers they have or how many?

I don't see what the deal is here but if you feel that you must then i would get a list of what equipment he has and come up with a value of it and offer that and nothing more. You will have to basiclly toss out most of it anyway, tops, drycleaning machine, etc. Yes, you must send out the drycleaning!!!

If at all I would only pay actual equipment value + a small amount for good will, NO MORE. DON'T PAY FOR POTENTIAL!!!!!

My guess is that you have no more than 15 to 20 grand of equipment there tops!!! I wouldn't give him more than 25 g's and that is being very very generous.

[Anonymous]

lol... pretty dismal, huh?

I completely agree with you on what's it's worth. He has 10 '99 Maytag dryers (MDG50Q). The dry cleaner is a '94 35 lb. MultiMax ShopStar. I also figured the whole lot is worth about 20k; your 25k number is exactly what I figured I'd offer, and yes, that's out of pity. Probably be a cash deal, and I have about that in add'l cash to use for upgrades/advertising.

I love the idea of bringing in a hard working entrepreneurial type to take over the WDF (and maybe dry cleaning). I've been ruminating on that all morning! Reality is that I'll be doing for a good long time.

Like you said, where it stands right now, I'd do better at McDonald's -- except for the potential during the (prime) times he's currently closed. Nothing to prove at all... just considering a poor business and looking at the potential of making it good.

I wouldn't turn my nose up at a 15k - 20k return on a 50k investment. Hells bells, I wouldn't turn my nose up at a 7k return on a 25k investment -- 'specially since there are PhD's applying at McDonalds here... :(

Thanks for your feedback!

Cheers,
pk

[MSKLAUNDRY.]

Ok, you have changed the story a little. 10 50lbs dryers? No smaller ones? I hope he is giving only 6 to 8 minutes per quarter on them.
Given the newer dryers that would explain why he is asking what he is asking. For him to have so many 50's and no smaller dryers doesn't make a whole lot of sense. So if i just use one washer, I have to use a 50lbs dryer?

You didn't say what the WDF income is? another 25 k gross?

It sounds like you will should source out the drycleaning. Try and get someone who will pickup and deliver the stuff also. Even if you make a liitle less you will also have less expenses related to drycleaning and you may even be better off that way, not to mention the headache involved dealing with Perc. Use the machine you will have as a backup.

You say "potential when he is closed" but are you sure you are going to bring in new customers or will it be just getting the same customers on a different day?

You say "I wouldn't turn my nose up at a 15k - 20k return on a 50k investment. Hells bells, I wouldn't turn my nose up at a 7k return on a 25k investment" but I would say that you investment will be a lot more. Think about it!!!!

Since i do not know your age or background or your present working status, retired or unemployeed, etc.. It is hard to say, but...

Lets assume you are worth in income 40 or 50 grand a year, just a # I am throwing out there. If you are going to buy this place for 25g's and then upgrade it with another 25 g's lets say, thats 50 g's.
Now let say you devote a year to the business of your time of which you are not getting paid anything for you real investment is now a lot more since your time and effort has valve and could have been earning you money elsewhere. So thats 50 grand plus lost income. Is the risk worth it? Only you can answer that.


I wish i could clone myself and be in several places and do several things at once but i can't. So I do the things that benifit(pay) the most. I wish there were 40 hour days and I had the energy to work all 40 of them. LOL Till then time is money and you should be compensated for your efforts. You need to valve you time in this equation also.

[Duane]

One last thing I would like to mention.....

I do not know your financial status, income, etc., but I was also a techie (systems consultant) making a real good 6 figure income. I was flying the world in a suit and tie, now I am cleaning a bathroom in my mat for about half of what I use to make. Good choice or bad choice?

I am now home with my wife and two daughters and work when I want. Money is nice, but sometimes other values come into play that you can't put a price on.

Don't under estimate a positive lifestyle change, only you know what you want.

[Anonymous]

Hi Marc and Duane,

I was a bit stumped by his choice of only 50 lb. dryers as well... he's vending those for 10 minutes at 25 cents. I am assuming the '99 equipment is at about 50% of its useful life, so had that equipment valued at $18k. Good idea to keep the dry clean machine; I had planned on selling it on the aftermarket. Nothing else he has is worth a darn.

Good point on the hours issue -- I have no idea how to even approach that. I've been assuming that more convenient hours (coupled with getting that info to customers going elsewhere) would auto-magically increase the gross.

No numbers for the WDF... and no idea how to even factor this, other than hanging out and watching it. Which I will have to do at some point!

<quote on>
You say "I wouldn't turn my nose up at a 15k - 20k return on a 50k investment. Hells bells, I wouldn't turn my nose up at a 7k return on a 25k investment" but I would say that you investment will be a lot more. Think about it!!!!
<quote off>

How so? I'm an out-of-work software engineer, and there are flat no jobs out there. One thing I haven't given enough attention to in this is the repair costs; since the worthwhile equipment is newer, I pulled a random number out of my head of $75 per turn a month. So at 1.5 TPD, I was figuring $112.5/mo in repairs/parts. No basis in reality, so I've got to find out where to start with that! Thoughts?

I just read Duane's response, and I'm in the same boat you are! I made $140k last year working 70-80 hour weeks, never saw my family, hated my life. Yeah, I could probably find another tech job, but not in my town -- 1.5 hour commute PLUS the 70 hour weeks again?? Those jobs are now paying $40k! No thanks... I'd take the $7k working for myself, building something from almost nothing ANYDAY.

The real question is what Marc said: is the risk worth it? I wish I had that answer... if I could say for certain that the later hours/Sunday opening would up the TPD to 2.5 and that I could learn to maintain and repair the machines without going broke, it'd be a no-brainer.

At the very least, the education I'm getting is the most fun I've had in a very long time... :D

Cheers!
pk

[MSKLAUNDRY.]

The dryer should give you at the very least 10 to 15 years if maintained but really i would expect closer to 20.

I understand the desire to be closer to family. I am on my own doing service which allow me to see my wife and kids more often. I used to do service for a local dist and put in long hours also.

Not knowing how the equipment is maintained over there it is hard to say what you might expect to spend on parts and service.
I would factor in at least $250 a month for repairs although you might find some months you don't spend anything and then pow, you get hit with a big repair.

[BWJR]

My opinion is you get what you pay for. Look for a better volume Mat and build your business off a higher base. This sounds like its been neglected for a while and its at its bottom.

[pete f]

I do not like low volume mats, in some areas that is all there is. If this one is very close to your home and you can get it for the right price and it does have the right demos then maybe something can be done.
What the current owner is doing is not working.

Find a buyer for the dry clean machine first, see how much it is REALLY worth. Also a buyer for 1/2 of the dryers. Take that money and another 60k or so and buy about 6 stacks, 1 55# washer, 3 or 4 40# washer, 3 or 4 25# washers. You can get the equipment financed but there goes your cash flow for a few years. You can use the space some of the tops take. Tile the floor, paint the walls, install new lighting if it has old fixtures, put up a new sign. Now you will have a nice mat that will compete with any other mat around.

It is going to take a chunk of money to do it right, and is a bit of a risk. You may never get the gross over 45k, but at least there you would make about 15-18k a year, which is not bad for an hour or 2 a day work. You are not going to get a 15-20k back on 50k investment, it sounds good but in reallity it does not really happen, MSK had many points as to why. At the current state of the mat is is worth tangible value of hookups, some machines, etc. It will take a remodel to make it work out, IMO.

[Anonymous]

It's sounding more and more like this isn't the right mat for me; HOWEVER, this is a great one to look at closely, because so many things are just wrong with it! I hadn't even considered that having all 50# dryers was a booboo.

So, I'm going to keep using this one as the mother of all learning experiences... but without the painful part.

Thanks ya'll for your excellent advice!
pk

[pete f]

They all have something wrong with them at low prices. You have to figure out what you can make right about it. The second mat I bought made no money for the owners, but was located well. I changed alot of the equipment and a few other things now I make a year almost what I paid for it. But it took a big chunk of cash to make it happen. Kirby did the same thing. Others here have also. I have a mat I am looking at tomorrow. $45k or so asking price. Claims 23k cash flow. 1600 SQ ft, rent $700 24/7 unattended store. I want to see what it has for potential. I assume all the machines are old. It is about 10 miles away.

[mike]

As in PeteF's new prize, it's all about rent (if you can't own)
1600 sq. ft for $700.
You can change the machines, & staff & hours, but you have to have a good location and cheap rent.
(even a bad location is okay if the rent is cheap enough !)

[Anonymous]

I figured this place is worth considering if and only if I can get the rent way down. The good news is that (1) the current owner is ready to walk away from the location, and (2) the landlord wants a long term lease, and available commercial spaces are overflowing here. WAY too much supply, WAY too little demand. If the landlord has half a mind, he'll jump at any rent, even 50%.

Currently 1600 sq. ft. at $1000 inclusive. I have a ton more research to do, and am meeting with the seller this afternoon/evening. Since he's asking 60k and I figure it's worth 20-25k, it isn't likely to pan out from that perspective alone, much less taking on the landlord.

BUT, this is a pretty cheap education... :D

Originally posted by mike
As in PeteF's new prize, it's all about rent (if you can't own)
1600 sq. ft for $700.
You can change the machines, & staff & hours, but you have to have a good location and cheap rent.
(even a bad location is okay if the rent is cheap enough !)