Is high owner turn over of a Laundromat a bad sign

[solonz]

Is it common for people to buy a laundromat, and sell it again after a year, or if there have been 2 owners in 3 years, or less, etc? Business brokers say that it can be profitable for people to buy and flip laundromats, but I don't really buy that theory. I wonder if it's more that they can't make money with it, and so they dump it.. Even if the water analysis comes back good, and the tax returns show a decent profit, it still seems odd that an owner would sell so soon, especially if they're getting a decent return on investment.. Any thoughts or feedback?

[neal]

The main reason someone will sell would be if there not makeing the money they think they should with the time they are putting in. After several owners it might be priced right for the sales it does.

[galaga]

Yes,it is bad sign most time.
You may find good store but the new owner find out that is not right business for he/she.You may find good deal that way.
I saw a lot stores were owned by same people for 10-20 years but the new owner try to sell them after a few months,those are not always bad deal.This business is more than just collect quarters.
If the store changes hand 3,4 times in a few years,it may be a bad one.

[solonz]

Thanks very much for your feedback guys! I had a deal fall through for a nice laundromat, in a great location this weekend. My first one, and so close.. I had heard it was the 3rd owner in 4 years, which made me a little weary. This is a busy, clean, big mat with fairly new machines. Gross is $170k, and asking $175k. I had negotiated the deal down to 160k. Net profit was $45k. The net was after paying for 1 full time and 2 part time employees for attending, and WDF. I did the water analysis, and saw it actually grossed $193k, which meant it nets $78k. Well, as I was stalling to sign the counter offer and fax back, I got a call from someone that Dunkin Donuts was opening next door to this laundromat. I quickly faxed back the signed counter offer... The next morning, the broker calls me to tell me that the seller won't sign, because a new development has come up that may help their business more... It had to be that the seller found out about the new Dunkin Donuts moving in next door... I should have tied the deal up first, then performed my due dilligence! Had I signed the offer first, and then researched I'd be laughing all the way to the bank by now.. I'm an idiot!!

[Howard]

I would not call you an idiot. Thinks happen for a reason. Don't look back, move forward!

[solonz]

Thanks Howard. I guess i just feel bad that I didn't employ my usual attitude of "Tie up the deal, then perform due dilligence".. Cost me a great mat,, 2 minutes away from my house too... Hope to be so lucky next time. Out of frustration, I called the biggest laundromat up the street from that one, in the center of town. Said he would meet with me this Friday morning to discuss the possibility of selling his business to me. Hope I might fair better there.. That water analysis really does work well, so I'll be using that again. It was cool to run the numbers with that system on my first offer.. Really works, huh? Thanks for all your advice everyone, and you too Howard! It's a nice community here with some very knowledgable owners. Looking forward to reciprocating with everything I learn too.

By the way, I got my CLA Kit.. That thing is huge! I'm almost done reading "Coin Laundries-Pathway to wealth creation". Now, I have to read the CLA "Gold Book" too? I think I should go back and get my MBA after this, goodness! LOL /ubbthreads/images/graemlins/smile.gif Anyone have any other resources or books they can reccomend to make me more knowledgable about this buisness, aside from reading all the threads here which I already did?

Thanks

[Burley]

I agree with Howard on this one.....don't look back. This is like saying I could have made a lot of money buying Microsoft stock in the 80's. Ya just never know.

Solonz----your analysis shows that they UNDERSTATED their revenue by $23,000 and this translates into an additional $23,000 on the bottom line. Hmmmm, why aren't any of the experts questioning this? Seriously, who understates when selling? Is this theory in the CLA Road to Richs book? I have a mat to sell you if you want to tell me that I am making much more than I think.

I don't know your location but I also question the value of a Dunkin Doughnut next door. Yes, it is better than nothing......traffic is always good. But, around my area doughnut places like DD, and Krispy Kream have closed down. You can buy doughnuts at any convienance store while filling up. If you want real good dognut's then go to a grocery store or real bakery.

Good luck with your next mat venture....just a word of advice, don't become fixated on buying a mat just because you have read about the riches to be made. It is possible for some but not if you buy to high, can't fix machines, and can't run a business. Best of luck.

[solonz]

Thank you very much for your feedback! I guess I've been under the impression that because this is an all cash business - revenue is understated for IRS purposes. You do need to own several mats to make lots of money granted, so I know it's not getting rich overnight in this business, but an investment like everything else I own. People told me all their get rich quick schemes with real estate too, and I went by my own analysis. Basically, finding the right deals over the last 4 years, and making several hundred thousand in profits in the process. So, just want you to know that I don't believe in get rich quick schemes, but I have proven to myself that there is money to be made investing, and if you look hard enough, and analyze the numbers properly, you can get there slowly but surely. I still have the same optimism for this area of investing as I do RE Income property, so march ahead I will.

Can someone please confirm something here? Does a seller usually state his revenues accurately, or understate due to IRS concerns? What have you typically seen when you bought your laundromats? Did your analysis show it was more than what the seller said, or less? Appreciate everyone's input here as always!

Thanks,
Solon

[Howard]

For many of the reasons you state a seller may show on an offering sheet that he is making less than actual BUT and this is a big BUT -- they will almost always make some verbal statement to the fact that the actual income is more than what is stated. It would be very unusual to intentionally understate income. That said, your water analsis is just an estimate, and it will never come out to match revenue exactly. There are many variables that can throw it off. Also, there may have been a vend price increase sometime in the past year, which would make your number using current vend prices come out higher than what the actual was.

[solonz]

Wow! Very true. Thanks for the advice Howard. Aside from doing the water analysis, and Gas "Therm" analysis, what else can you do for detective work? I guess the last two years tax returns too, but really what else can you go by to verify true revenue of a mat? Is the only other option available just a "Leap of faith"? What is your experience as far as another method that's worked well for you in the past when verifying accuracy of stated revenues of a laundromat that you bought from someone?

Thanks,
Solon

[Howard]

In my opinion, and others will disagree alot, tax returns are useless as are bank statements. A tax return if a person is not 100% above board will tend to understate income and overstate expenses. Similarly a bank statement may or may not tell you anything. If they are not reporting all income then it probably never sees the bank. If they want to make the mat look better than it is what is stoping them from depositing extra money in the bank account to show you how well it is doing.

The same actually goes for the water analysis. If a person has a dog of a mat that they want to get rid of why not run extra water down the drain for 6-12 months so they can have you do a water analysis that will make you conclude the mat does more than it does. Get my point here?

It really comes down to looking at the entire picture, including your assessment of the individual you are buying from. If you are comfortable and have developed a basis to trust them then you are probably going to be ok.

If an Enron can deceive professional auditors don't you think a smart seller can cook the books enough to fool you or me? Go with your gut, trust but verify!

[Duane]

Always do your due diligence first, then make the deal. You can write up offers with escape clauses, contingency clauses, etc. to your advantage, but how can you ever make an offer to buy a business when you haven't done your due diligence to first find out how the business is doing?

Remember, the owner of a mat will have different expenses than you so make sure your can afford to run the business. Some differences are: No debt service, different insurance company, more or less legal / accounting needs, payroll, general labor expenses (can you fix things?), different lease negotiated, etc....

You due diligence should show potential income and YOUR expenses.

Remember to buy the equipment and not the business.

Duane.

[solonz]

Hey howard,

You're making me worry too much now... To the point where I wonder how good an idea it is to buy one of these now... It's almost like I need to buy neew here to know what I'm getting into.. There's got to be something more definable as far as a set, sure fire system for finding a mat that produces what they say it does. I guess if you feel comfortable with a seller you'll know, but there are some good bull shitters out there where you may not be able to see true intentions.

How about this, you do water, gas, tax returns, and then the ultimate trust test, seller holds 30-40% note. This way they better be telling the truth, otherwise they're not getting their money, right? What is your system for going about a purchase from someone on an existing mat?

Thanks

[solonz]

Thanks Duane,

I do keep debt service in mind on these calculations. How do you put it in offer about buying machines, and not business? Just in those words? That's one thing I've been wondering about when writing up offers.

Thanks

[Duane]

This is where you talk to an attorney.

Buy the assets, incorporate, renovate, big grand opening.....

[Duane]

When I mean buy the assets, you are really just buying the cash flow. The attorney will word the purchase agreement as needed.

[Howard]

Expanding on what Duane is saying is that you want it to be clear that you are buying the assets only and not the stock in a corporation or the corporation itself. The corporations contains both assets and liabilities -- you want any liabilities to stay with the current owner, you only want the assets.

[solonz]

Thanks very much guys! Your the best! Great advice all around. I spoke with Harvey Kantor of Triumph Leasing today. He seems to know his stuff, as he is also owner of several mats, and also on the board for CLA too. It's nice to know that you can get help financing for an existing mat, and they offer to give you help on evaluating the opportunity so that they know if it's a good deal for their investment too. That's awesome. Harvey also reccomended the CLA Gold Book, and said it was pretty accurate. Any feedback on the Gold Book? Or, do you recommend any other reading or resources that gives good knowledge about this industry?

[Sunflower]

How do you do the water assesment test? /ubbthreads/images/graemlins/blush.gif)