Need outside expert opinion on purchase price...

[bridgerworks]

A business partner and I are looking at purchasing an existing laundromat in WA state and would like an objective opinion from industry veterans on whether the research we have done backs our conclusions.

The business has exisited in one form or another for more than 40 years. The current owner has owned it for 3. The equipment (except two large Maytag 50# and 35# washers put in in 2002) is very old. There are 19 dryers (7 SQ 30XG, 2 SQ 30EG, 3 Loadstar III, and 4 Loadstar II, of which 10 are operational, 5 are malfunctioning, and 4 are non-operational. I don't know the age of the dryers, but I'm guessing mid to late 80's. There are 22 topload Maytag washers, 12 are 14-years old and the other 10 I still can't find the correct model # for Maytag to give me any info. The other 2 are SQ Front loaders of unknown age as well. There are also 2 Wascomat W74 (circa-1981), 2 Ametek Mi-T-Boy and 2 Ametek Big Boy washing machines. Three of four of the Ametek washers are not working. There is also a pop machine, two change machines, and two soap vending machines. So out of 51 machines, 34 are in good working order.

I've verified the last 27 months of income (very detailed records), which is trending downwards (-4 to -5 % a year), that averages $6600/mo. The expenses (utilties, lease, labor, debt, new equip lease, maintenance) total an average of $4500. The lease is 5 years into a 10 year lease. The building was built in 1945 and needs quite a bit of cosmetic upgrades.

The asking price is $65K (plus taking on $4K in machine lease payments) with yearly gross of $81K. They do some drop off service, which generates approx. 10% of revenue. Owner claims $30K in profit, but only reports $6K in profit on taxes. Doing my own calculations, I think it should be clearing less. My partner and I think it is WAY overvalued, due to declining revenue, age of the equipment, degradation of facilites, and lack of amenities.

We think that there is opportunity to turn the business around, since it is in a great location with very little competition and loyal customer base. It has just been run down and needs an influx of capital to start replacing equipment and a facelift.

Any thoughts? Many thanks in advance......

[azkid]

With an existing store/location, it's all about the cash flow (actually it's all about the cash flow with a new store also, but it's just harder to figure!). So, project out what you think the cash flow will be, get estimates for any repairs you anticipate, etc. and do a NPV calculation. You can find calculators for this on the internet. I think my main concern would be about the demographics and the lease length. If you're thinking you'll shave $30K or whatever off the price and save HUGE (capitalized since you did the same with WAY), think again about how much the repairs and upgrades will cost.

[Spin_City]

I'm impressed that they are making any money, with the equipment in such bad shape. I've looked at a few laundromats in my area that are in much better shape, but make zero money.

It is possible that you could nearly double the monthly revenue just by repairing the equipment. The keys are demographics and the lease.

What do the demographics look like? Are there other busy mats in the area? If this one was substantially upgraded, would customers come? Is this mat busy to point of customers waiting for machines on weekends? Or has the current owner not bothered to repair machines because no one would use them if they were available?

Secondly you need to do some work on the lease. I would talk to the landlord before going too far with this deal. 5 years is not enough time to pay back investments. If you think that there is potential to increase the business by investing in repairs and upgrades you need to negotiate a longer lease. It would also be nice to get the landlord to commit to some improvements to the building.