Buying a coin laundry
By Willard Michlin, CPA
Buying a coin laundry or laundromat appeals to a lot of business buyers. This is because they are cash businesses and because they appear to be a good part-time business. In fact 2% of all the business sold through business brokers are coin laundromats. Many clients that I am dealing with have been interested in coin laundries and have brought me financials to review as part of their due diligence.
Coin Laundries – A Sound Business Investment?
One of my clients had me educating him on two locations he found. He then went on to evaluate another 35 locations using the tools I gave him. After months of work, he only made an offer on one of the two locations we had discussed together because it was the only location that fit all of his and my requirements. I blessed that deal.
Another client was looking at the only two coin Laundromats in a small coastal town in Northern California. Both locations were owned by the same owners. They were so mismanaged that the owners were fighting about how to fix the locations. The places were dirty, 40% of the machines were broken, there was zero customer service and the cost of opening a new store was so high no one would do it. The deal made sense because the buyer and I negotiated the price down to account for these problems, and the buyer was offering all cash.
Starting a Coin Laundry
One day in February 2011, I was thinking about all the people who would like to buy a coin laundry but couldn’t find one. I got the wild idea that maybe I should find a perfect location, based on my criteria and build a new location from scratch, with all the newest ecological up-to-date equipment. I figured after I built it, I could sell it since I knew it would be a money-maker. I then started my investigation into the costs of doing this. Here is what I learned from talking to the new equipment distributors.
They all suggested that I needed a location that was over 5,000 square feet which could handle over 100 machines. The cost to do this was over $1.2 Million dollars, depending on the city and water district set up fees. The equipment distributors’ reasoning was this. If I had a large location, no one would dare open another new location near my location. When I suggested to them that I might want to have a small location that would be operating at 80-100% of capacity. One responded with, “If you do not have enough machines when your customers come in, they will leave and never come back.” He was arguing that it was better to have over capacity rather than under capacity. When I mentioned that the industry was down 30% he responded with “Some people, not everyone, is down that much. The ones that are down are the owners who do not advertise and do not know how to run a store.” Very interesting point of view, don’t you think?
After reviewing dozens of financial statements as part of due diligence for prospective business buyers, beware of the following facts:
- Industry is down 30% or more from the period before 2008.
- If you look at large locations you will see that they are always running at less than 80% capacity.
- You make profit in this business when the store has a high number of washes per machine. You do not make money having machines sitting idle while the loan payments have to be paid.
- The reason the equipment salesperson suggests big locations is so they can sell more machines. The more machines they sell you the more commission they earn.
- A smaller location with reasonable rent and high turnover of washes is going to make more sense than a large location with lots of idle machines.
- Your biggest expenses are utilities, rent, repairs and financing. These can make or break you.
- There are lots of little things that make a difference in valuing a location. For example, the credit card idea for coin laundries failed. The customers rather use coins. It costs money to convert credit card machines to coins. Computerized price displays on coin slots allow you to change prices quickly and often.
- Old machines are like old men. They still can do the job but it takes longer and if you push them too hard they will die on you.
- When you own a coin laundry, it is important to spend your time on developing advertising campaigns and services that will build loyalty with your customers. 20% of your clients will be moving in a year. 15-20% of your clients have a washer in the apartment building they live in, but they still are choosing to come to a Laundromat to do their washing. Most well run Laundromats spend 2% of their gross income on advertising. See how much the Laundromat you are interested in buying is spending.
- A Laundromat can be a great investment if most of the positive points are in and the negative issues are not. (This is obvious, of course. Or is it?)
- Remember that the size of any business broker’s sales commission is based on the purchase price you pay.
- Do not complete the purchase of an existing or a new coin laundry without a knowledgeable third-party giving it the once over. No one can know everything and regardless of how much you read and study, there are important issues that only experienced owners or advisers know about.
Willard Michlin is a CPA, #106752, Certified Fraud Examiner, and has owned apartment buildings with a coin laundry in them. He offers assistance in the key areas involved in the buying of any business. Click here for his help to find which business is the right business for you. He is an experienced, honest and trustworthy consultant. He has published many articles and is in demand as a public speaker.
You can write to Willard Michlin at email@example.com and he will always answer your questions. He can also be contacted at his Orange County, California office by calling 805-428-2063.