Multiple of Cash Flow (SDE) for Mat

[whose2know]

Full Disclosure...I'm a newbie here. I'm looking at some business opportunities and a business broker presented me with a Laundromat business for review.

When I asked: How does your brokerage come up with the valuation of a Laundromat business...listing price relative to Seller's Discretionary Income? the response was "Laundromats sell on a 4.5 to 5.5 times multiple of SDE".

In reading some posts on this site people have said Mats sell for 3 - 5 times cash flow. Can someone provide some insight here? The broker is going to tell me whatever they want to to sell a business at the highest possible price, so how do I put the 4.5 to 5.5 times muliple of SDE into perspective?

I haven't looked at the financials yet, I was just provided summary info on revenue of $250k, Cash Flow/SDE of $145k.

It is unattended and payments for janitorial services are aboue $17k. The cash flow presented is based on an owner/operator assuming this role.

Monthly rent is $3.6k, which includes CAM and Taxes. The lease is long term which expires at the end of 2023.

Maytag 36 washers ranging from 3-6 old and 30 dryers 5 years and 10-11 years old. The asking price is 5.25 SDE.

The cash flow seems really high if I take $250k, subtract the $43.2k for rent, subtract the cash flow, it leaves only $61.5k for repairs, utilities, security, trash, licensing, cable, cleaning/maintenance, insurance, security, etc.

I'm wondering if I invest any more time to get the financials to review. Thoughts?

Thanks in advance

[subati]

Firs of all .... welcome.
First..... take a good look at the listed price and then promptly forget it.
Beware of broker invented terms like "seller discretionary income".
Definitely take a look at the financials. Irrespective of whether you make an offer or not, you will still get to learn something.

Cheers

[chad]

If you looking into getting into the industry a 20-23% return is the norm. For a nice clean store you will pay more money, if you want to pay 3xs net then you are buying trash.

[laundryboy2]

When you look at the financials consider how YOU will run the store.

For example, you'll want to know how the seller determined NET (Revenue less expenses) If the store is attended, there will be salaries and wages. If you'll operate the store as unattended - your net will may be more.

So, pretend a store has the following (as an example):

coin revenue 100,000
wdf revenue 50,000

wage expense 47,000
utilities 31,600
dumpster fee 2,400
maintence 5,000
parts 4,000
supplies 10,000

NET is 50,000


The store is fabulouse condition (5x) asking price 250,000
The store is a dump (2x) asking price 100,000

Now, you look at how you will operate; if you go unattended, you'll drop the wage expense and supplies down BUT you will reduce your WDF (wash dry fold) revenue also. Let's say you have multple stores and will haul the trash to a central dumpster thus reducing expenses by 2400 and increasing YOUR net. Depending on how you value the business, that could be worth between $4,800 and $12,000.

[ldm]

I would recommend you get 3 years tax returns and a complete lease package to review. If need be, have your professional team review the information as well. Les