revenue verrification service ? does it exist ?

[ChuckB]

Many of you were kind enough to repond to a similar question from Jamie (NJ). I hope you will do the same for me.

Can you help me verify the sellers claims.
I am evaluating a 9 month old store trying to prove revenue.
Water use for washers obtained from the City.
18 Whirlpool toploader @ $1.00
10 Dexter T400 39 gallons @ $2.00
12 Dexter T600 (? Gallons) @ $2.50
4 Dexter T900 69 gallons @ $3.50
20 Dexter stack dryer (40) pockets 12 minutes @ $.25
6 month average water bill 184,000 gallons and rising, City read meter every 2 months.
Readings of 440 ( 329,000 gallons), 487 (364,000), and 550 (411,000). Units are 748 gallons each. Increase were 10% and 12% respectively.
Seller claims $4,000 per week revenue excluding Fluff & fold.

Also I haven’t seen anything about Whirlpool TL on the site. Any comments on them?

[Todd]

Chuck, I wanted to get in a comment on the whirpool tops. I have 8 that are less than 2 years old and some older ones as well. So far, no regrets, they rarely break down, and their tech support is very good, and they are excellent at honoring warranty parts with no hassle.

[Anonymous]

Would guess that the tops use around 34 gallons a cycle, but someone else here might have a better guess. The irs has some figures on their website that you might want to check. Don't know the Dexter T600 usage but would imagine that it is a linear increase from the T400, so you should be able to do a ratio of gallons per pound capacity for the T400 and multiply it by the pound capacity for the T600 and have a good estimate.

The biggest assumption is going to be in the usage mix of the equipment. It would be helpful if you had some idea if they all get equal turns per day or do the tops get many more turns than the larger machines - this could have a large impact on the estimate.

Your revenue for the tops if my guess of 34 gallons is right is about $0.0294 per gallon while for the T400 and T900 it is about $0.051 per gallon. Thus, if I assume that the tops get slightly more usage I might use a figure of say $0.040 as an average gross per gallon which comes out to about $7,360 per month for the washers based on your average monthly water usage.

If I assume dryer revenue at about 30% of water revenue which is a good ballpark figure then the dryer revenue is about $2,280 per month for a total washer plus dryer revenue of $9,640 a month. Assuming 4.33 weeks per month that comes out to about
$2,226 per week. So either I made one hell of a mistake here, or the owner is a BIG lier.

[Todd]

Chuck B, I just ran figures as well. Kirby is right. The seller is not telling you the truth. I took his best 2 months of usage and figured that for 12 months and ran the figures. I used 34 for tops, 55 gallons for the T600's, and factored in a waste water/margin of error for calculation of machine usage at 7%, and came up with a gross of around 140K for the year in total coin, with 95 being the washers, 45 for the dryers since their priced a little low at 12 minutes. This would put you around $2700 a week for a coin gross. Don't buy this store based on buildout cost even though it's almost brand new, it will be a mistake, stick with the practice of buying based on what the store is generating on a net basis. Good luck.

[pete f]

without knowing how much w/d/f it is near impossible to calculate coin. All you can do is guess.
His last 2 months avearged 6744 gals a day, if it were all coin I would guess 3000 to 3600 a week. But you know w/d/f was done so calcualte down from there. I may used to high an average overall profit per gallon also, I am not used to those cheap prices and have nothing to compare it to.
Don't keep us in suspense, how much do they want for the store and what is the rent?

[Anonymous]

Remember that the WDF machine usage is already factored in to the gallonage usage. All you can add for WDF is the profit portion, not the gross sales as you have already accounted for them in the water consumption.

[ChuckB]

Originally posted by pete f

Don't keep us in suspense, how much do they want for the store and what is the rent?

The rent is 2900 or effectively $1/sq. ft. Price is a little over a half a mil - asking.

F&F will become an interesting endeavor. Currently the owner is doing it and I have no intention of personally doing it. Therefore, I either have to hire someone or develop an independent contractor relationship with someone (potential IRS problem if not done right, actually even if done right.).

The going rate in the area is $.85 a lbs.. I figured $.08 of that would go to WD which left $.77 to cover attendant and profit.

I want the person to be outgoing and interact with the customers not just do laundry. Therefore I'm mulling over all kinds of ideas on how to package something.

What have you found works the best?

[Anonymous]

I think you are calculating the rent incorrectly. I assume you are saying that the rent is $2900/month for roughly 2900 sqft, that would be a rent of $12/SqFt. Per square foot charges are expressed on an annual not a monthly basis by convention.

At $500,000 asking they are looking for a big sucker. Even if their number of $4000 per week is true that would equate to only $210,000 gross add another maybe $40,000 for WDF and you come up with $250K. That would be 2X gross, not that multiples of gross are worth much as you really only care about net. But those that use gross multiples usually only will pay about 1X gross. BE CAREFUL!!!!

[ChuckB]

Kirby,

I very much appreciate your input and cautions. I have looked and calculated the annual gross multiplier on each of the 12 washes I have examined. They range from 1.8 to 2.5x with the higher one being the better leases.

Although I didn't buy them, they did sell (most) .

It doesn't seem crediable that this could be a regional issue, so I will check again.





Lease - 20 years with defined options +1
Equipment - less than 1 year old +3
Demographics - neutral - 0
Condition - +1.5
Amenities - average - 0

This would give me a multiple of 55.5 which would mean the net per month would need to be approximately $9000 per month.

I don't list these numbers as a rebuttal to your suggestion, instead as a discussion point between the two methods they seem to be so far apart.

Thanks again.

[Anonymous]

You should forget about multiples of gross and only work with multiples of net. Gross means nothing. I rather buy a mat that grosses $100K and nets $50K than one that grosses $300K and grosses $40K. Mats typically go for 2-5X net, with most in the range of about 3X Net. Hope that helps.

[MichaelCa]

Kirby wrote:
"....If I assume dryer revenue at about 30% of water revenue which is a good ballpark figure "

Others have said 50%, & 40% .... What are the causes for this high variability ?
I understand about modifying minutes dry-time & temp., but since most are within a narrow band, is this enough to create such a disparity?

Nearly all say 8-10mins., and ditto for setting their temps about the same: near the hottest.
This is also true of the Mats (records) i've looked at for sale.

What am I missing?

[Howard]

From experience, my monthly gross is usually 1/3 drying. It varies considerably depending upon the season, the humidity, the outside temperature, the particular machine usage (extraction), and other related factors.
I have never read about a 50% split, but there are probably several 40% and 20%'s.
Vis-a-vis using multiples for purchasing a mat. I use 3.5X net to see if I am in the ballpark of the asking price. If so, I do a detailed restatement of the P/L statement, using the actual utility numbers and plugging in all of the costs associated with the way I run a Laundromat (auto expenses, insurance, office expense share, hardware, advertising, etc., etc.). Based upon that net, I make my initial offer, which is usually less then 3x the stated net.

[pete f]

The dryer income depends somewhat on the dry prices. At .25 for 12 mins, That is on the low revenue side from my point.. I get .25 for 6min, or 7 1/2 min depends on the mat. That may be figured in kirbys numbers,.
500k for a mat that does 200k a year , well, the rent ratio is good.
5x cash flow for a new nice mat is not unheard of.

$375k is tops the way I see it. Forget fluff and fold, it will barely outdo the expense to have it. Buy coin. 3600 x 52 is 187200. Take 40% cash flow, 74880, 5 times that is near 375k.
That is about what it would cost to build it if you do it right.

[MichaelCa]

Howard, your 1/3 means 50% of wash.
Dryer revenue at 50% of wash revenue is Not the same thing as 50% split dryer/wash revenue.
To illustrate: If your wash revenue is 10,000, 50% of that is 5,000, for a total of 15,000.

This is the most frequent ratio i've seen.

What i was wondering is how can this ratio sometimes be significantly lower - but i can see how extraction ability as well as ambient humidity would be significant factors.


BTW, Pete, could you tell about how the response was (is?) to your Dry-Time of 6mins.
Its interesting (& encouraging) to see owners attempt to raise Dryer revenue.

[pete f]

The response to the dryer times was about the same as when I raise a washer, I make more money to offset the rising operating costs. When I was 16 I delivered tires for a local tire store, and worked into a semi full time job,. I was in the wholsale dept, and sold to gas stations and used car dealers. I got a paycheck plus a small commsion. Like clockwork the tire companies would raise prices 2%-3% every 9-12 months, and the owner of the store would raise the service prices every year, ie, balance up .25, alignment up .50, etc. I always balked becuase I was afraid I would loose business from my accounts. The owner never flinched, and my customers got over the price increases fairly easy. I was conditioned to price increases, and I try and raise something in my store every year. I do not think about what the customer will say or do. I figure it is part of running the business so I have no choice. So far I have never put a price increase on that did not make me more money. Just a couple weeks ago I got my notice from the landlord of the little store, my rent goes up a little over $1 a day. I immeditely raised the price on 2 washers, a 55# and a 37# by .25 to offset the rent increase. And this is the store across the street from the new mega mat. You have to make money to surrvive and provide a decent mat. I ain't working for free!

[CharlieS]

I've always heard that dryer revenue should be about 1/3 of total revenue, which is the same thing as saying 1/2 of wash revenue. I tend to average a little less, usually between 29-31% of total revenue. I give 7 minutes for a quarter, which is already less than any of my competitors.

I agree with the analysis below. This store is probably doing about $3K per week. Do your due diligence. Get the deposits, do a store audit for a week, recording the water before and after.

The key question is, not what someone else would pay for it. The only thing that counts is, what is it worth to you. I see rental properties sell all the time at prices that I know will mean negative cash flow. I won't pay those prices.

Remember, you are buying a business, not a job. I want at least 20% return on my investment, preferably lots more. I'll work a little bit to keep that going, but not full time.

[Beverly]

Charlie--

Query---Since I'm in Los Angeles with probably the lowest dryer vend prices in the country thanks to the idiots we have here, my dryer revenue is way higher than your 33% figure. Given the climate (pardon the pun), what would be a realistic percentage for our area? The vend prices run as follows-- 25cents for 11-20 minutes. Currently we charge 28cents for 13 minutes and my nearest competitors charge 25cents for 15-20 minutes. Thanks for any input!

[CharlieS]

Beverly -
I'm not sure I understand your question, plus don't have the data to answer it.

First, higher times per quarter would translate into lower overall dryer revenue and a corresponding lower percentage of income for dryer revenue. Rather than being well above 33%, I would expect your dryer revenue to be 25-30%, except that

The percentage would also depend upon your washer revenue. My guess is that your washer prices are also highly competitive. Assuming that both wash and dry pricing are highly competitive, the percentage of dryer to total income (defined as dryer + washer coin income only, no WDF, vending, or dry cleaning included) would probably still hold in that range.

As owners, we have several choices relative to pricing.

1) Keep our prices really, really low in the hope that volume will create enough profit to make running the business worth the effort. This of course means that we probably will not generate sufficient revenues to replace aging equipment or update our facilities. In addition, we will attract the bottom feeders, who want low pricing, but have no loyalty. This is what I call the K-mart method, which of course has been in semi-bankrupcy for as long as I can remember.

2) Float along, ride the shoestring, try to raise prices occasionally, reduce them again when the first customer balks, and end up in the same place as #1 above.

3) Aggressively operate our business, which means maximizing profits. This does not necessarily mean maximizing total income. I would rather have less income and more profit anyday. We do this by routinely checking the pricing of our competition, checking the quality of our competition, and working to keep our quality high and our prices at the top of the market. The market will respond to a clean quality store, with good equipment, and is willing to pay for the privilege. In addition, this generates loyalty, customers who love your store and will tell all their friends how good it is. Yes, some customers will walk. However, some customers will come. I would rather lose the bottom feeders and gain the ones willing to pay a reasonable price for a quality service, making a reasonable profit on a store I can feel proud of.

Yes, this is also the message delivered by CLA. However, it has worked very well for me, not only in my 2 laundromats, but also in all of my rental property small laundries.

It takes guts to be the price leader. You can't be so far out front that you are way way over the competition, but you don't want to be in the trenches, either. Your pricing must be relative to your quality. This varies in each location.

Like Kirby, I find virtually no resistance to my increases. They are minor, and I change one machine at a time. Card machine stores have a definite advantage here, because they can make smaller incremental adjustments that the customers think are reasonable. We talk about the high cost of cards, but .05 a year, on 60 washers and dryers doing 4 turns a day is $4500 a year. I would bet that Kirby keeps an even higher margin than that over his competitors.

Charlie

[CharlieS]

Beverly -

Don't forget as well that the question is not how long you get for a quarter, the customer ulitimately is concerned about how many quarters it takes to dry. At 7 minutes a quarter, I give the lowest minutes in my local market, which averages 8-10. However, my Wasco TD-3030 dryers are very fast, feel very hot, and my customers spend less on them than they do on the old dryers of my competitors. They get out quicker, love the digital countdown. If they complain about the time, I tell them, don't worry about the time, worry about the quarters. They believe me after they use them. The best part is that these use less gas than the dryers of my competitors.

Newer washers are also more efficient users of water and electricity. I have quadrupled my turns on the old SQ tops in my first mat, since I replaced them 2 years ago with my maytags. However, my electric bill is nearly the same as it was 2 years because these draw far less energy.

[MichaelCa]

Charlie wrote (on Dryers): "...and my customers spend less on them..."
Not sure if anyone even tracks this info but,
It'd be very useful to know what average cycle(or quarters) per dryer load is.

I.E., 4 cycles= 1.00, 5 cycles= 1.25, etc.

YES, it depends Both on minutes & how hot your dryers are,
but there has to be some way to perform an empirical "best profit" analysis.

Since your customers spend less $ on your Dryers, I assume you've determined that your profit is still higher even with that fact.


BTW , thank you for your insights, it's been extremely useful in my due diligence.

[Lar Hylobates]

Michael,

you will find the use of such words on this board as "empirical" does nothing except to upset the aborigines. I for one am apalled at your attacks.

As far as your poor chucks post, I can only say, once again that a distributor or broker is attempting to retire from one sale.

[pete f]

If I had taken typing and payed attention in English class to spelling and writing I would have written everything CharileS did.

As for dryer/washer income ratios, when a customer asks me how much will it cost to dry or how may quarters should I put in, my answer is always " as a rule of thumb it costs about 1/2 to dry as it does to wash"

Your dry rev will be about 50% of your wash rev, and as it works out mathmaticaly, which I was good at in school, 33% of total rev, as Charlie already mentioned. But becuase most have soda/soap revenue it is slightly less on an gross revenue basis..

[swice]

Hello All !

My question is ? Is there such a thing as a service that works as an intermediary income verification agent ? Someone who would come in for say 10 days and take control of the coin boxes and bill changer. They would also stand watch "" in person"" and video monitor the mat to make sure the seller was not stuffing the machines to drive up the revenue count ?

I know there are all sorts of formulas that folks use to backup rev #s like water/sewer bills and even gas to calculate hot water used / gallons per cycle ?

But....

As a buyer I would gladly pay $3000-$5000 to have a bonded service like this come in for 10 days before I paid $50k+ for an existing operation.

I can only think of 2 reasons that a seller would not want this sort of thing (paid for by the buyer)

A> That the seller was overstating the revenue
B> That the sellers earns a bit more and fears the tax man :-)

Anyone ever heard of this sort of service ?

Thanks sooooo much for your help and feed back..

Ed Swice

[pete f]

I would say you are smarter than many I have seen post. You would be supprised how many drop 400k plus without thinking of getting ( paying) for a second opinion. I can't stand by the store, to busy for that, but I have verified water and gas for many. At the moment I only do consulting for a donation to coinwash, the scope of consulting you need would probably be in the $500 range. You can search back posts for my work.

My service will include a intent to purchase contract, lease and other consulting as needed. Great deal for a serious buyer. reference can be given.

[Buddy_Amoroso]

Ed,

Would ten days be long enough to verify the numbers? With an extra 50g's on the table the seller could pay all of his friends and family to use the mat for 10 days to inflate the numbers.

Look at the sellers tax records (if he lies to the IRS he will lie to you).

Work the number backwards using electric, gas and water bills.

Verfy your own numbers before spending big bulks on a mat. Many people have been burned big time by not verifying numbers.


Buddy Amoroso
Baton Rouge, LA

PS
Pete offer is a great deal. You should take him up on his offer before you commit your self to buying the mat. An independent party like Pete would be a great resource.

[DuboisLaundry]

Look at the sellers tax records (if he lies to the IRS he will lie to you).



perhaps, but if he did, then it really earned MORE than he stated.


I don't know of any kind of revenue audit service. I think some sellers might be skeptical about letting some 3rd party collect and count. Even if they have some kind of bond or insurance, how would a seller prove skimming in the event of a claim?

[Laundry_king]

Is there a easy way to figure this.

How do you know if they just ran the water to make it look better.

How can you match it to the gas or powere bill ???

to make it look equal?