new help evaluating a store

[tlev89]

Im currently evaluating a store that does free dry although they charge double for the washers.The problem is even though they are charging $3.oo for an 18bler , etc, their gas bills are huge.Im talking about using over 8000 therms a month.So their utility bills are actually going to run me 40 percent of the gross if I took over.(its costs them even more because they locked in a high price)
Im wondering if I took away the free dry and charged normal prices for the washers , ex $1.50 for the 18lb and 8 cents for 10 minutes of drying time, am I going to lose alot of customers?Who would take that chance?
They are asking alot of money for the place anyway.(5.5 x net)
thanks

[pete f]

One thought is if they sell the store maybe you do not pick up thier gas contract. I always start my own. Last store I bought they had a crappy deal, I went with anither supplier.
Maybe keep the high wash price and charge a little to dry, say 25 cent for 15 or 30 mins. Over time notch it all into place, it will take years.

[Walter]

tlev,

I'mg going to answer your question a slightly different way. IMO, if you're going to be paying top dollar for a store (don't know exactly what you'd be paying in actual dollars), then you'd want your risk factors to be somewhat minimized.

Moving away from free dry is a big step - it could work out, but could also be crippling. Why would you want to shoulder all that risk and also be paying top dollar, to boot? I tend to stay clear of these situations. Either the store is reasonably priced and I take my chances, but if it's expensive, then I want my risk mitigated.

Anyway, just my point of view. Others perhaps, are more risk-tolerant.

Walter

[SuperMat]

You should definitely get rid of free dry, since that is probably what's driving up the gas usage. It could be almost 20% more with free dry. I wouldn't however charge 8 cents for 10 mins. and lower the washers to $1.50. You would be in much worse shape (3.00 to wash and dry an 18# load vs. $1.90 at 50 mins. of dry and 18# wash). What about pricing where it should be? $2.00 -$2.25 for an 18# and dryers set at 7-8 mins. for a quarter. If you don't feel it will work, put the dryers at 10min/quarter. If your washers are $2, that would get you the same amount of $ (3.00 total) for a normal load, and drastically reduce your gas usage. Shouldn't be too hard to show the customers that they are spending the same. Don't worry about a gas contract you didn't sign. Sign your own once deal is done. 5.5 x net is not too much in this area, for a store that size.

[tlev89]

Hi,
Thankyou for your opinions.I would actually lock in a gas price cheaper than what they have it locked in for.In ny im looking at .92 per therm plus delivery and taxes , so about 1.27 per therm.
Most laundromats in queens arent getting 2.25 for an 18lber, maybe 1.75 if they are lucky.
5.5x net is worth if for a store this size?I dont think you can really make a good return if you pay more than 4.5x net.
Who would want to put down 375k and only make $5500 a month after paying a note?That take into account buying a store that makes 200k for a million and putting about 35 percent down.Who needs that risk?

[tlev89]

Walter,
What you said makes alot of sense.I dont want to take a big risk either.Maybe ill take away the free dry and people wont come back although no one else is giving free dry either in the area.I really thought that their washer prices would make up for the free dry but it doesnt since their gas bill is about 11k a month,thats crazy.If a store is doing 12k a week in all self service, how much should it really be if there wasnt a free dry?
I think I might walk away from this deal

[Walter]

tlev89,

Please undertand that I'm not trying to scare you off this store, just trying to help you coolly assess the risk/reward ratio. If I'm reading your post correctly, if everything stayed the same and you left the free dry in place, you'd be making 17.6% cash-on-cash annual ROI (66,000/375,000) - not a bad return in the laundry industry (assuming interest rates don't rise! Or are you paying a fixed rate?).


A couple of other critical factors to consider:

1. How strong is your lease - in terms of length & rent escalations?
2. What is your competition like, and is there room for additional competitors to open up, or is your territory somewhat protected geographically, etc?
3. What is the age/condition of your equipment? Will significant upgrades be required in the near term?

Assuming that all answers to the above questions are strongly positive for you, then your success may hinge heavily on the future price of natural gas and interest rates. If you were to leave everything as is currently priced in the store, but were able to lock in a long-term gas contract at less than what the current owner is paying, then you may be in very good shape (again, depending on the future movement of interest rates). Again, depending on the market, a multiple of 5.5 isn't necessarily unreasonable, but make sure it's really 5.5! At a million bucks, if your gross income dips, you can incur a huge paper loss very quickly...

Walter

[tlev89]

Thanks for the advice.17 percent cash on cash return is good for the laundry industry?So am I crazy to try to get a 25 percent cash on cash return?
Actually I figured that return with the rate that I will be able to lock in not what they have locked in right now
The lease is 17 years but its a sublease.
The machines are 3 years old.
They dont do any wash and fold , just self service.Im sure I can build that up.
They dont do any drop off dry cleaning.
They are a big company that owns alot of laundromats so I hope they wouldnt lie about the gross, I already sat in the store for a few days and counted money and they showed me an audit with the card machine but I didnt stay for a full week.
Real estate has become so high in ny that i doubt any competition woujld be able to move in plus the store IM LOOKING AT HAS 20 car parking.
Id rather buy a a store at 4.5 times the net, there is a much better return there.lol.
How wonder how much sales tax would cost on a store with 120 machines.
P.s. I would be paying a fixed rate of around 10.5 percent.

[WhatwasIThinkin]

A couple of things.
Just because real esate in Queens is high, some distributor or other guy may open a store anyway.
Utilities are our most volatile expenses. What happens if a hurricane rumbles through and your $11k / month goes to $20k? $3 for a 18lb won't help much.
Why not go to free dry during the week first and lower wash prices gradually?

[Silent Roo]

In a service business you have to price your product to make money! If you do not cover cost you do not survive. Loss leaders are a poor idea! Look at Best Buy, they have trained their customers to wait for a rebate to buy computer products. They do great business the week they give a 100 mail in rebate and sell very little the weeks there is no rebate. They have created a monster they are trying to deal with.

Same thing here. You have two options

1. Walk away
2. Risk money and make changes.

Free dry can be a way to build business however you are creating a monster with the expectations you create.

If it were me I would make the change to come closer to the market.
making sure I could cover my cost. Will business suffer?

How do you make a million in the Coin Laundry Business?
Start with two million!

[tlev89]

IM locking in the gas price so hurricane or not hurricane, the gas bill would be the same.
They have about 7 50lbers that they charge $6 dollars so im thinking about raising that a dollar.
They also have a few 80lber that they charge 8.25 so im thinking about raising that a dollar also.
I think 8.25 with a free dry is not high enough.
Any suggestions

[pete f]

IM locking in the gas price so hurricane or not hurricane, the gas bill would be the same.
They have about 7 50lbers that they charge $6 dollars so im thinking about raising that a dollar.
They also have a few 80lber that they charge 8.25 so im thinking about raising that a dollar also.
I think 8.25 with a free dry is not high enough.
Any suggestions


Do you want to stop free dry or not? From there we could give ideas, such as mine to charge a minimal fee for dry now, say 25 cent for 20, 30, min. By now you could take down the Free dry sign, you have few new customers coming in. The idea is to make those existing customers more profitable. Normally this info is for prem members, but I think you are getting on board.
$8.25 for an 80# washer with free dry is equivalent to $5.75 wash price.

[tlev89]

Hi there,
No, I dont want to get rid of the free dry.

I just want to change the vend prices on some of the washers to make the place more profitable.
I didnt even buy the place yet.They are asking about 5x net which scares the hell out of me!
But they dont do any wash and fold and I know I can build that up even though id rather not be bothered.
thanks