Everything you need to know about Store Valuation

[brucehwalker]

I've heard many theories on how to estimate how much a Laundromat is worth. The majority of posts on this blog go something like this. "Hey I 'm looking at a store that has this equipment mix, and is doing this much volume, What's it worth?" The answer is "Whatever someone will pay for it!"

I've heard take the net profit x 2 to 7 depending on how old the store is and what shape the equipment is in. If you own the land and building add the market value to your profitability number and that should be the "Value" of your business.


It seems like there ought to be a reasonable formula that would give you a starting point.

<font color="blue"> One question I have is do you include your debt service and wages when calculating net profit?
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If you have something to add to how you'd come up with the magic number please reply.

[azkid]

I'm sure you'll get various replies. My take on it is that it's all about the cash flow and the reliability of the forecast for it continuing (i.e., new store with favorable lease would have a higher valuation multiple than old equipment and poor lease).

You can look in any finance book and see how to value cash flows - the 2-7x multiples are just ballpark thumbrules people have used for this business (so, there's no "magic" behind them). With low interest rates, the case can be made for higher multiples, etc.

Anyhow, to answer your question, I would not use debt service but would include wages in determining the net figure.

[brucehwalker]

How about a store that has gone out of business? Do you shoot them an offer with used equipment prices?

[JamesD]

Bruce,

Equipment in place is only worth what the store can generate in NET income. If it went out of business, then it is barely worth scrap value.

You have to decide if the numbers work for you. You may be able to survive in that location because you will obviously pay a lot less for it then the previous owner, especially if they built it new. Then again, it may not work even if they give it to you for nothing!