Getting into biZ-Confused with Financial Terms

[ximena]

Hello:
My husband and I are considering getting into the business. I have been browsing through several listings and am very confused about the financial terms used to advertise some of the business. I'd very much appreciate anyone providing me with some clarification and guidance as to what we should be looking for. I don't want to overwhelm you with the details, but these are four basic ads I have found....what do they mean:
1. Price: 195K
Yearly Sales: 218K
Net before labor: 106K
2. Price: 149K
Gross Sales: 160K
Owner Benefit: 87K
3. Price: 139K
Sales: 142K
Adjusted Net: 75K
4. Asking Price: < $250K
Gross Revenue: $227,471
Cash Flow: $95,578
Cash Flow Type: Seller's Discretionary Earnings
Value of Inventory: $40,000
Value of Equipment: $59,000
Established: 1971
Employees: 1 - 3

I guess that although all these figures are important, we want to see a figure that pretty much says: this is what we have left after ALL expenses are cover or in other words, if we were working for a company I'd like to see the equivalent to what my salary after taxes would be. Do any of these figures provide just that?
Thank you in advance for your help.

[Duane]

I am going to confuse you a little more.

Gross or sales - what a store takes in.
Net is gross minus expenses.
Price - What they want to sell the mat for.
Don't worry about the other terms. They really don't need to be known.

First, don't take to much into account of what the net is. You are more interested in the gross amount and from there you will need to verify it from water usage. From there you can estimate and income from Wash Dry and Fold or drop off dry cleaning. Also include a little for vending,etc....

If you can verify that the mat is actually grossing a year then you can calculate expenses.

Utilities (gas, water, sewer, electric) between 25-30% of your gross sales.
Rent (should be able to negotiate a long term 15 or 20 years)
Maintenance for machines (older needs more, newer (hopefully) needs less)
Property taxes
Employee costs (wage, taxes, benefits, etc.)
Supplies (cleaning, vending, etc.)
Equipment upgrades
Insurance
Phone
Cable
Garbage
Misc.
Etc....


Take your gross and subtract all your estimated expenses to find your net. This is what the mat is estimated to clear each year. It has been debated on the multiple to use when purchasing a business. Some say 3-5 times net, others say more. I feel if the mat is old and run down you use a smaller number. If it is newer with well maintained equipment then maybe a higher number. So your net times 4 (for example) will give you your asking price you are willing to pay. Don't worry about what they are asking for the store, only pay what you think the store is worth. All they can do is say no....

Find a local mat that is close to you. Less than a 15 minute drive is good. And ask if it is for sale. All they can do is say no....

It sounds like you are just getting into the mat business so do yourself a favor and join the CLA. The information they provide will help you on your new business endeavor.

And.... No matter what anyone says, you just don't collect the money and vacation. A mat can be a lot of work if you want to make money. 7 days a week, every week.

Take your time...... Maybe 1-2 years of research should give you a good idea if you really want to be in the mat business. I did 2 years of research.

Duane.

www.LMARIES.com (http://www.LMARIES.com)

[ximena]

Thanks for the advise. Do you think I can also have a copy of that business plan? Thannk you!
My e-mail xsanin@comcast.net

[ximena]

I know I am going to sound very ignorant but I will still ask: I hear you all talking about demographic reports, how does one go about doing one?
Ximena

[Duane]

Claritis is a company that does demographic surveys and CLA members get 50% off.

Duane.

[change]

I understand Duane has an excellent guideline for a business plan. He should be selling his outline, instead of offering it for free here, he is helping many potential owners out with his graciousness. I hope those that have received it are thankful. From what I understand he takes alot of guesswork out of preparation of the planning stage. But with any plan the outline needs to be outlined to the area and numbers of the location within the plan. While Duane has an excellent basis for a business plan, every potential business-person needs to do the research and homework needed to complete the business plan into a viable plan that discusses every aspect of the venture.

While this is needed for many to ensure financing, it should be the first step for anyone interested in this business whether financing is an issue or not.

[ximena]

I thank you all very much for your input, especially Duane's. Your business plan sample has surely been very educational. I will continue to do my homework. Does anybody know of a good lawyer and accountant with experience in this type of business in the Miami-Dade area? Once again, your help is greatly appreciated.
Ximena

[RWSmith]

Hi Ximena,
The Fla. Coin Laundry Association is having it's fall meeting Oct. 23rd in Ft. Lauderdale. Our featured speaker is Richard Weisinger a CPA from CA. Richard is a great speaker and has spoken at numerous CLA functions. He is a former laundry owner and has written numerous articles for New Era magazine.
The meeting is open to everyone.
If you have any questions please e mail or call me at 772.567.4545
Reynolds Smith

[petefritz]

NET and CASH flow are the terms to pay attention to. Owner benifit may be potential cash flow also.
Before labor cost mean the owner expects you to do the work if you want to make the stated amount. This bring to your question, get as much as a paycheck.

If you plan to work as many hours as you do at your regular job then you probbaly need to have in your cash to spend (invest) about 3 times your yearly earnings. Business are sold on cash flow, and you pay 2 to 6 times that cash flow for the business.If you try and finance then your "paycheck" goes to the lender for 5 years or so. If you don't need the money this is not a bad way to build equity. You only need about 1/2 as much cash doing it that way.

My business plan will not work for you if you do not live in the same town. You need to write your own based on your own local conditions and knowkledge of the market. It is ismple, list what reveue you expect, what your expenses will be, what is left over. If you think you will increase the busienss then tell why, how long it will take and extra revenues. I wrote my first one when I was 19, was putting 50% down on a building with a business so the bank was not at much risk, they just wanted to know what I was going to do.. I never wrote one for a l'mat, most banks are not very interested in finacing them, though you may need one to buy the real estate.
Good Luck

[drsinclair]

What about impact fees?
David

[RWSmith]

Impact fees are fees that are collected by local taxing authorities to pay for municipal services. Essentially it is a tax on new businesses or homes. The fees are usually paid up front and are the property of the landlord.
In our area the fees are charged for roads. electrical service, and water and sewer hook-ups. Water and sewer fees are $5500 per washer. The fees are great for keeping out competition but it can make it difficult to expand or build a new laundry.
The fees vary widely from one area to another so it is important to find out if they are applicable before you buy or lease a building.