Need Advice

[LarryNY]

Hi,

I found a mat that is not to far from my house. I got the financials and was wondering if someone could evaluate. The broker gave me the location. The store itself is ok (1500sq ft) but could use some sprucing up. The stores location is in a large shopping center that includes a movie theater, supermarket and various other shops and eaterys. The landlord is making many improvements to the exterior including new facades, lighing and repaving the parking lot.

There were 4 people doing there laundry at 3pm on Thurs. when I got there. The store has 21 dryers (2 years old) and 21 washers (10 years old) some were out of order. There asking 85k the broker has already told me they will take 75k. The owners live out of state and no longer wish to be absentee owners. Here is a bg red flag in my opinion. I huge laudromat opened 5 months ago about 1/4 mile away from my loacation. This is a state of the art mat with over 50 washers and dryers. They are opened 24 hours a day the place is huge a pretty. I can tell you that no one was in there though? The location is not as good as the shop I am in but it is new and shiny.

Here is the financial info:

$85,000 (USD)
Financing:

Sales: $130,000 (USD)
Other Income: $0 (USD)
Sales Tax: $0 (USD)
Total Revenues: $130,000 (USD)
Cost of Goods Sold (%): 0%
Cost of Goods Sold: $0 (USD)
Gross Profit: $130,000 (USD)

Cash Outlays
Rent: $27,600 (USD)
CAM: $0 (USD)
Officers Salaries: $0 (USD)
Payroll: $44,200 (USD)
Payroll Taxes: $4,420 (USD)
Owner Health Insurance: $0 (USD)
Employee Health Insurance: $0 (USD)
Business Insurance: $1,741 (USD)
Advertising: $1,160 (USD)
Interest (eg. Line of Credit): $0 (USD)
Utilities: $17,100 (USD)
Telephone: $600 (USD)
Business Cell Phones: $600 (USD)
Legal & Accounting: $700 (USD)
Credit Card Fees: $0 (USD)
Gas: $3,900 (USD)
Owner Car Lease Payments: $2,988 (USD)
Business Loans: $0 (USD)
Repairs and Maintenance: $1,000 (USD)
Supplies: $1,000 (USD)
Postage: $0 (USD)
Rubbish Removal: $480 (USD)
Equipment Leases: $0 (USD)
Travel & Entertainment: $1,200 (USD)
Water $1,200 (USD)
$0 (USD)
$0 (USD)
Total Cash Outlays: $109,889 (USD)
Net Cash Flow: $20,111 (USD)
Cash Flow
Officer Salaries: $0 (USD)
Health Insurance Owner: $0 (USD)
Business Loans: $0 (USD)
Interest (eg. Line of Credit): $0 (USD)
Credit Cards: $0 (USD)
Owner Cell Phone: $600 (USD)
Owner Car Lease Payments: $2,988 (USD)
Gas Personal: $3,900 (USD)
Travel & Ent. $1,200 (USD)

Owner's Cash Flow: $28,799 (USD)

Let me know what you think. Thanks so much for your help!

Larry

[Fred50]

Need a lot more detail, but the quick response is:

Owner's personal expenses are irrelevant

Rent seems low. Where in NY are you?

How can CAM be zero?

Utilities are way too low!! They should be 20 - 25% of gross. Don't forget that at current nat gas prices, your net will be much lower this year than last.

What is the revenue trend since the new store opened? Has the trend stopped??

Maintenance and trash seem low, especially for an absentee store. Maybe that is why there are machines OOO.

Water seems low too. What about sewer bills?

It is also suspicious that payroll taxes are exactly 10% of payroll. That seems a little low too.

Provide as much detail about the utiliities and equipment as possible. What type of machines including size vend price, condition, etc?

What about the lease? How much time is left? What are escalation clauses, etc?

You have a lot more homework to do before you even think about putting up an offer for this one.

[Kitty]

Travel and Entertainment is in there twice and if the machines are 000 all the time I think 1K for repairs and maintenance is mighty low.

Business gas and personal gas = the same expense?
Business insurance is this liability and WC?
Supplies is this COGS included in this amount? Soap/coke?

[LarryNY]

Hi,

Lease terms are 6 years remaining with 5 year renew option. I was told that they were paying all help off the books that is why they added 10% for payroll tax. Was also told that this was a deal breaker for the person before me who was interested in the shop. Broker says they will come down 10k on price.


I will get more details and post them. The new larger mat scares me. I will see what the numbers look like for the past few months.

Thanks everyone for your help!

[Fred50]

11 years remaining on a lease is a bit of a negative. Can you get a new 20+ year lease? If you have to replace washers soon you may have to close shop before you realize their full potential.

What happens at the renew point? How much will the increase be? What is it based on?

Make sure that the payroll makes sense given the hours the store is open.

If these guys pay everyone off the books that would be just another reason not to trust them. It is a huge risk. If you buy it, the first thing that I would do would be to put everyone on a legit payroll.

They obviously don't have Workmen's Comp!! Huge mistake.

The insurance # doesn't sound right.

[Kitty]

Verify the income and consider what YOUR expenditures will be in addition to what this establishment is handing you to decifer. What they say and what is in actual to what is happening inside their business may be two different scenarios, you may have to decide whether you feel good in your gut with what they "pay out in cash" and what they may "take in in cash". This is part of the due dilligence process and this is what makes this business tricky, risky and very profitable when you find that golden egg.

Kitty

[LarryNY]

Hello Again,

I am in the process of getting the financials (more detailed) so I can better figure out how profitable this place is. I am just curious I am really concerned about the new place that opened down the road? I am wondering if this should be a legitimate concern. My location is far better but there store is far better. Is location better than appearence/machinary? I honest do know how they are making any money they have the location staffed 24/7 they are giving away drying with a wash. They have easily invested over 300k in this place I dont think they can possibly show a profit at this point. Any ideas?

[Kitty]

Location Location Location
Parking Parking Parking
Capital Capital Capital...

:)

[pete f]

Here are the important questions:
How far is the mat from your house?
How much biz is w/d/f?
How do the water usage figures compare to same month 2006/2005 for the last 5 months?

There are always lots of reasons not to buy, find the ones why you would buy it.
Leases are important, but few landlords want to lock in a 20 year rate. Options to renew are not worth to much unless there is some specified rate. If the shopping center is run by a legit company than they will want to keep you as a tenant, so you just have to pay the going rate as leases renew.

[LarryNY]

Hi,

Thanks to all that replied. I visited the store for four straight days. Store was empty 2 of the four times I visited. Sunday the store was dead. I think they are doing 75% wdf. Competeing store had people in it all the time. I think I am going to pass on this one.