Profit Margin

[MrsNewMat]

What is the profit margin in Mat business?

I was just asked by a frined and quite honestly, I don't have a clue.

Does anyone have an answer? I know there are many factors that play into the calculation but does anyone know on average? Let's say, there is no WDF and all washers are front-load.

Thanks, in advance.

[mike]

What is this word "profit" you speak of ?

But seriously, It could be anything from 80% down to minus whatever,

depending on how you define costs, return on assets etc.

[pete f]

Mike is correct, I have 3 mats, with profit ratios from excellent to very poor. Some are worse off, having a minus profit. The seminars like to tout 25%-30%
With all the right things going for you, a working owner could achieve those results and even a little higher.

[rockefella]

I'm not a mat owner, but I'll take a stab at this issue. Flame-suit on.

In the accounting and corporate worlds, "profit" can mean any of EBT (earnings before taxes), EBIT(earnings before interest and taxes), EBITDA (earnings before interest, depreciation, taxes & amortization) or "net income" (earnings after taxes, interest, depreciation, amortization, etc.).

In the coin laundry world, it seems to mean EBITDA BEFORE the owner draws his salary or AFTER he gets his salary.

I personally would not consider the owner's salary as part of profits, unless the owner is in reality putting practically none of his own time into directly managing the mat, in which case, any declared owner's salary is really just profit.

Example: Let's say a mat generates 300,000 in revenue. After all operating expenses (except for owner's salary), it generates 100,000 in "income". The owner puts in a large amount of his time at the mat, say 20-25 hours a week, and pays himself a salary of 50,000. Many mat owners would say the income is 100,000. Others would say it's really 50,000 since you have to take out the owner's salary. After all, if the owner weren't working at the mat, he could be earning income by using his time in other ways. I would argue you also have to take out depreciation, because the fact is, owners do need to set aside a certain sum each year to eventually pay for machine replacement costs. I would never ignore depreciation. However, I would say you could disregard interest and amortization expenses, because the interest expense varies by owner, depending on how they chose to arrange financing. Amortization would normally apply to good will (the premium the owner paid for the mat, if in fact he purchased an existing mat), but that's really a tax break and is dealt with at the time of purchase of the mat.

It all seems pretty confusing, and everyone seems to have a different view in the mat industry. Because there is no commonly accepted definition, it seems people in the mat industry have to be extra careful when talking about "profit".

[mike]

Rockefella,

I don't think you're going to need that flame-suit !

[MSKLAUNDRY.]

Well 50 k salary is pretty hefty for 20 to 25 hours a week but you have the right idea. I think is fair to say that one would subtract a reasonable amount from the gross paid to the owner for time spent running the mat a certain amount of time during the week.

For example: if the mat is attended and the owner runs the store from lets say 7am to 3 from, Monday to Friday, then he would exclude that salary from the profit because if didn't work the store he would have to hire someone to do it and that is an employment expense.

I don't know what attendant that gets paid 50 k, lol. Perhaps 15 to 20 k so if you paid yourself 50 k then about 30 k would be profit. So in the above example the real profit would be 70 k. If you hire someone to do the day shift and pay them 15 k to do it per year then the owner could/would use those day hours to produce more than the 15k your paying the employees to take over those hours!!!

Now you get these mom and pop mats that say they make 30 to 40k net profit but have no employees only the husband and wife who open and close the mat every day, 7 days a week. I say what profit!!! If you had to hire some employees to run all the shift for 7 days you would be left with $0 or -. I don't know how these mom's and pop's value there time but I valve my time more that 15 to 20k per year. An I wouldn't be paying 3 or 3.5 x this 30 to 40 k # to buy there store. Its like paying a lot of money to get a job and not a very good one at that.

Net in reality means what a mat makes on it own without you covering the shift, its that simple. Tell that to these broker who try and push all these no money making junk locations, LOL I see it done everyday and you know what, there is a sucker born everyday.

Who's next?

[pete f]

wow, I would have to give away a couple stores.
Ain't going to happen. I think it is times vs. money, as always. A big mat doing 300,000 a year gross, ( and I am sure there are not to many of these around) and making 100,000 a year profit after paying all expenses, except the owner, and an unattended mat grossing 60k a year and making 28k a year after paying all expenes have different owner responsibilities for his/her time. Still, many would be happy to work at a mat 6 day a week, all day and make 15k, say as a second job for the wife, kids, or retired people. In all cases, the mats have value to someone who is willing to do the work required to make what the mat makes. In general, this is a small owner operated business in which the owner operates the business, so whatever the business makes, that is what the owner makes, and that is the profit. If you want an investment that requires no work than buy stock or bonds. You will see the difference in returns very quickly. You buy yourself a job when you buy a business, what is that job worth? This is why this business is not for everyone, their expectations are to high and not realistic. You can't quit your corportate job, invest in a mat and expect to have the same income, perks, etc. These are two very different type of work enviroments.

[Andy]

pete,

amen brother!

[MSKLAUNDRY.]

Sure Pete 15k may be a lot to some folks but no one should buy a store for 75k, 100k, 150k+ if they have to work the place themselves just to make the 15k.

Pete, you mean to tell me that you would consider buying a store that would only make 15k/year only if you and/or your wife worked it. Why would you spend ANY MONEY to buy a store that will return you a profit of that which doesn't even rival that of a McDonald's worker. I say to those wife, kids or retired folks go out and get a job. Even a unskilled worker can make with a little effort 15k/year.

Now if your mat truly can be run as a unattended mat, (some simply by location cannot) then its a whole other story. A unattended mat really falls under a different picture. Sure you as the owner devote some time, as you also do in an attended and I am sure you also have a clean up person but for the most part the place is on auto. Your able to freely devote you unused time to other revenue generating avenues, job, other businesses or whatever. This type of place in my opinion is valued differently.

A truly profitable mat is one where you don't have to devote ALL your resources to run it, unless of course it is generating more money than you personally would otherwise generate.

[pete f]

Marc, I agree, a 15k a year store that must be manned is not worth 75k, but 45-50k, maybe if it was clean, newer machines, steady and had some possibilities.
I disagree a person would be better off working at McDonalds than for them self, even if it at the same pay rate. I know there is chance of advancement at McDonanlds, but also there is chance of making the business better, and in the end, you have something to sell. Owning and working your own business is a challange only few will take, it is so much easier to work for someone else. I would not work 40 hours a week for 15k a year in my own store NOW, but many years ago I worked for less than slave wages in a business I OWNED. I was very happy, and as time went on, became succesful. It was not always easy.
Beyond all that, there are still many reasons why a store that makes a small amount is still worth something to someone. MAybe keep the kids busy, maybe working when retired for something to do, maybe just starting out on a shoestring and wanting to get into business. Most people start small and work up to big.