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Old 07-12-2017, 10:48 PM
LaundryNewbie LaundryNewbie is offline
Join Date: Jul 2017
Location: Southern California
Posts: 2
Default In Escrow - How do I value the store?

Hi all,

I am a new prospective laundromat owner that is currently in escrow on a store.

Store price is in the $500K range, with reported earnings of around $9K/month.

My dilemma is that after doing our due diligence, we believe that the owners are slightly over-reporting revenue and significantly under-reporting expenses to the extent that the store is likely only doing $6K to 7k a month in profit (at best).

The store is in a prime location (very high population density, very low income), but there are a number of competitors in the area, one of which is much newer, nicer and is only 0.2 miles away. We believe we can fix the store up for around 20K to $30K in cost, and if we wanted to change the 16 double-stack dryers (very old, 2001), then add another 70 to 80K on top of that.

So....While I was originally comfortable with purchasing a store for up to 5 times earnings (especially if it has potential to grow), I find myself very reluctant to pay 6 times earnings or MORE, just "for potential." I am working with a laundry consultant who is telling me that most new laundry buyers never want to pay a penny for potential, and that is a big mistake that newbies make, always looking at the numbers, etc. That I should be willing to PAY EXTRA FOR POTENTIAL.

So my question is, how much over 5 times earnings would you pay for POTENTIAL in a situation like this. This is not a run-down mop-shop selling for $80K, but a fully functioning store that is selling for over $500K and is producing $6 to $7K a month in profit (more if you ask the owners!).

Am I looking at this incorrectly if the MAX I am willing to pay is 5 times their REAL EARNINGS that I've calculated?

Sellers have refused to show their tax returns and literally have no books for us to go off, just their numbers written in a notebook of their so-called collections. We have done observations on six separate days, 15 hours per day, and have a pretty accurate count of the revenue they are actually pulling and the real expenses they are incurring. If anything, we are being too kind to them in our analysis.

What's the most I should pay? At what point do I just walk away?

Edit for Clarification: This store is leased, so we are not paying for the real estate. We will need to negotiate a 15 year lease with the current landlord.

Last edited by LaundryNewbie; 07-12-2017 at 10:51 PM.
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Old 07-12-2017, 11:14 PM
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Coinwash Coinwash is offline
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Location: NY
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Go to editorial page please 1st

Then start reading posts.....
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Old 07-13-2017, 12:17 AM
LaundryNewbie LaundryNewbie is offline
Join Date: Jul 2017
Location: Southern California
Posts: 2

Hi I already did that. I've also read around on these forums for the last few days as well.

Apparently coin laundry's in CA are typically valued at 4-5 times annual earnings (Some brokers even say 4-7 times earnings), so it appears that CA laundries are a bit pricier than other parts of the country.

My questions still stand.
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Old 07-13-2017, 07:32 PM
shad2038 shad2038 is offline
Join Date: Sep 2008
Location: Mildura Australia
Posts: 1,241

It is very hard to bank "Potential"

Never pay more than 5 X Nett!

See if you can get Utilities for last few years, together with income you may be able to figure whether improving or going backwards. I have seen figures for a mat that showed growth of income, but no positive change to utilities. He held off, and ended up paying 60% of asking price. 1st years figures were down 15%, so obviously overstated.

Buyer beware!

Good Luck.

Last edited by shad2038; 07-13-2017 at 07:34 PM. Reason: Spelling.
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Old 07-14-2017, 03:13 PM
KJD KJD is offline
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Join Date: Jun 2003
Location: NY
Posts: 1,350

Maybe it's just me but for a 1/2 million I'm going to see books and tax returns.
If not there is something to hide.
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Old 07-24-2017, 11:28 AM
Posts: n/a

Originally Posted by KJD View Post
Maybe it's just me but for a 1/2 million I'm going to see books and tax returns.
If not there is something to hide.
I agree COMPLETELY. They need to earn their payday. If you can't run an organized business with books, records, etc, you shouldn't be able to get $500k on the market for being sloppy.

From someone who overpaid when first getting into the business (based on potential), my advice would be to tell them you want a steep discount for not having books, or go find another store to invest in.
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