Thank you once again for your time this morning. I cannot tell you how much I appreciate the conversation we had today. I was telling my wife, what an eye opener it was just speaking with you. I admit I am jumping into this with blinders on and unfortunately I trust people too much and take their word (which is really stupid). I told her the best thing we did was spend the money for your expertise. I would have had no idea all the items to look for which you pointed out. Once again thank you for the education.
"Prior results do not guarantee a
SOME POINTS FOR THE CAUTIOUS BUYER:
is what you pay...Value is what you get"…
You must buy value; which means you need to understand exactly what you are buying, being very careful not to pay too much. One of several major keys to price is gross sales. In fact, it is fair to say that a 10% misrepresentation as to gross sales can impact the overall value of a coin-laundry business by some 20%, and maybe considerably more; therefore, you must ask the right questions, and be able to assess the accuracy of the answers.
Of all the small business models one might consider, coin-laundries are probably the most alluring. Being deceptively simple looking, they are also among the most beguiling.
Although they may appear straight-forward (part of their appeal to investors) laundromats are not transparent - they lend themselves well to fraud and significant omission. Therefore, seller representations - especially those as to gross revenue must be verified by independent means.“Financial Statements” are representations of the seller - they are not independent means. One ill-advised means of independent verification, which is commonly promoted by coin-laundry touts (both on-line and as half-learned authors of books on the subject), is the comparison of claimed revenue to water usage.
I consider it ill-advised for several reasons: Firstly,
it is a relatively inexpensive method by which a
seller can perpetrate a fraud by simply
running-off water. Secondly, issues such as
leaking water and mineral deposits within water
meter mechanisms (water meter maintenance tends
to be neglected by water providers) can
significantly effect the accuracy of an
analysis. Thirdly, many commercial washers now
offer discrete programing that can significantly
impact water usage (e.g., Wascomat "Generation
6" washers can be adjusted, at the sole
discretion of the business owner, to utilize 1.2
to 1.9 gallons of water per lb. of laundry - a
maximum differential of 58.3%!).
If you insist upon analyzing water usage, you should at least be alert for leaks. One common source of leaking is the water inlet valves in the washers (mineral deposits will prevent the valve from closing properly). Choose a time when there is no washing machine activity and check the waste-line outflow to ascertain that water is not leaking through the machines. As most machines sit idle with the dump-valve open, any water leaking into the machine from the leaking water inlet valve will pass undetected through the machine and into the waste-line. Moreover, accidentally running water, as may be caused by a stuck-open toilet tank flap (especially if it frequently runs all night), can significantly distort a water usage analysis.
more reliable, but more complex, alternative to
water bill analysis is analysis of fuel usage.
It is more complex because it involves more
variables, but more reliable for three reasons:
Firstly, as fuel is far more expensive than
water, willful distortions
(sometimes implemented by running-off hot
water) are cost prohibitive to effect.
Secondly, as fuel is not permitted to leak, one
need not allow for leakage. Thirdly, as heating
the hot water to a certain point and getting the
laundry dry requires a relatively uniform amount
of fuel, fuel economy initiatives are less
effectual, with a correspondingly narrower range
of consumption differentials, than those
associated with minimizing water use.
When analyzing a laundrymat for a client, I use my exclusive formulas to verify gross sales based primarily upon fuel consumption.
Water usage is not the best means by which to verify laundromat revenues.
Be alert to seasonal weather changes
when evaluating a coin laundry. Both
the first week of warm weather in the Spring,
and the first week of cold weather in the Fall
can excite a 10% to 20% increase in coin laundry
DON’T PAY TOO MUCH:
This site generates a fair amount of email
response. With alarming regularity I
receive emails from desperate people who are
seeking my help. Typically, they had a
lifelong dream to be in business. Then someone
died and left them a little money, or they
retired and received an associated sum of money.
Believing it would produce a good return on
their investment, they purchased a laundermat
without understanding what it was worth - and
they paid too much; after making their note
payments and paying their expenses, there was no
money left - no return on their investment – and
frequently worse. I’m sorry, but the time to
correctly evaluate what a business is worth is
before it is purchased. I can be of great help -
but only before the purchase.
The significant key to wealth accumulation is loss avoidance!
To make matters worse, people are frequently misled (usually by uninformed business brokers or sophomoric website pundits) to rely upon imprecise valuation "formulas" that are based solely upon or over-weigh the value of gross or net revenues, while overlooking or under-weighing other important factors; or "reference manuals" which urge the use of "guestimate" formulas. ("Guestimates" are ideal for figuring out how much hay to feed your pony, but they are certainly not suited for the accurate evaluation of a potential investment.)
Resist the flood of laundry business accolades cascading from the internet for long enough to enable yourself with unvarnished information.
YOU NEED A COIN LAUNDRY EXPERT:
An evaluation of any business demands that all
significant issues be identified and accurately
analyzed. This is especially true of
coin-laundries. (They are never as simple as
they look.) However,
it’s difficult for
newcomers to get the help they really need -
certainly, neither the seller, nor the broker,
will point out any problems with the business
(see my "Q&A" page). The average lawyer
is of little help- their only job is to
get you what you are paying for - not to reach
the issue of whether or not you are paying too
much. It is also important to understand that
as it will offer guidance based solely
past performance, an accountants report
can easily misguide a laundromat valuation.
Gary, however, will provide accurate
coin-laundry valution based upon the
forward looking approach of a specialized
financial analyst with wide experience in the
coin laundry business.
Distinguish an accountant from a financial analyst: Accountants are generalists who look backwards through the lens of taxation; but financial analysts typically specialize in one industry and look to the way forward (as does Gary).
WHOM CAN YOU TRUST?
Even if you wisely elect to seek professional advice, unbiased professional advice is very hard to find. That’s because brokers, authors, promoters, and laundry equipment salespeople are primarily interested in seeking their own profits. Business brokers have an obvious self-interest (commission only upon sale) and they typically work for the seller - not the buyer. The half-learned write incomplete coin-laundry books. Then there are the “pitchmen” who produce and promote coin-laundry DVD's and sell them via "blue-sky" website presentations.
Don't get bedazzled. Pitchmen induce impulse buying by sparking excitement – but a good consulting analyst will spark improved comprehension and better business judgment. You can invest in significantly improving your knowledge - or you can pay to join an "electric light parade" to nowhere or worse.
It is also worth noting that much coin-laundry industry publishing is by or on behalf of people who sell laundry mat equipment. Trade magazines are published by those who sell advertising space to those who sell equipment, and “consultants” are typically those who promote the coin laundry business in order to sell laundry equipment (i.e., you must purchase a laundromat before they can sell you new laundry equipment.)
reliable consultant has no interests other than
yours....so discover everything a "consultant"
has an interest in before acting upon his or her
advice - especially the advice of those
"consultants" who claim to be "retired", but
still maintain business interests in laundry
HERE’S WHAT I CAN OFFER YOU:
If you have read to this point, you are seriously considering buying a business you don’t understand. That’s OK – and it’s where I come in, for the key to success is to secure impartial expert advice. This is exactly what I offer. My loyalty is solely to my client. I do not broker coin laundries. I do not benefit from the sale of laundry equipment. I offer no links to any other sites. I even forbid advertising on this site (thereby giving up considerable income). Moreover, I am BBB accredited. (You would do well to note the absence of such accreditation among the self anointed laundromat "experts" on the web.) My sole source of income is the fees I receive from my clients. Therefore, my economic survival depends upon my reputation, which in turn depends upon appraisals that are both honest and accurate.
For a very reasonable fee, I will empower you with information you must have in order to screen-out the many inferior deals (many of which are cleverly disguised as a "pot of gold"), and I will “walk through” the first coin-laundry with you to make sure you understand all of the important issues (there is very much more to a laundromat than meets the eye). Moreover, you should improve your coin-laundry knowledge before initial meetings with either sellers or brokers.
First impressions have a primary impact upon relationships, so first empower yourself to ask incisive questions that will earn you the respect required to enlarge your space in the deal.
If you are considering building a new
laundromat, first contact one or two laundry
equipment distributors in your area.
Distributors usually offer “turn key” (they will
build the whole thing for you) proposals.
Generally, a distributor proposal will include
demographic data, a “radius map”, estimates as
to prospective gross and net, a sketch of the
proposed facility, a list of recommended
equipment, and an estimate of construction
costs. Familiarize yourself with the proposal
and then consult with me.
MORE IMPORTANT ADVICE:
Funding: Be it a coin-laundry purchase, or the purchase of some other small business, your very best source of funding is the seller (no origination fees, fully negotiable terms, and immediate availability). However, if seller financing is to be part of your deal, avoid personally guaranteeing notes. A personal guarantee not only renders you personally liable, it has the effect of reducing the sellers financial incentive to see you do well and give you whatever help you may need.
"Term Sheet", "MOU"
("Memorandum of Understanding"), or "LOI”
("Letter of Intent"). These are essentially
non-binding expressions of intent that
fall short of a binding agreement
and are generally used in very large and complex
transfers, or in the world of academia.
not appropriate to a coin laundry transfer
and you will squander a lot of money on
expensive attorney time in order to produce a
non-binding agreement. Or,
if you are
unrepresented, you can inadvertently bind
“Due diligence” and more particularly, "risk analysis": Although generally accepted accounting principles can be universally applied to various types of business, misunderstandings can arise as to both method and application as to a particular type of business; e.g., as to a coin-laundry, what should one be concerned about and how does one apply those concerns to the business being studied? In any event, I offer you the key point: coin-laundry “due diligence” methodology is not inborn or instinctual - one must learn it. In fact, I have never had a new client who came to me with all significant issues identified, including those clients with substantial experience in other types of business and those who had read various laundromat books or subscribed to DVD courses.
"Risk analysis" is all about early identification of potential problems that could cost you money - and for that you require an experienced guide.
Beware of business valuation “formulas”: These formulas best serve sellers and reliance upon them is ill-advised for purchasers. Devised by business brokers, the typical two or three variable “formula”, although typically inaccurate, does offer ease of very rough estimation as to asking price. And in the end, the value the seller will receive will be the self-evident total of cash and notes; but the buyer will receive a business, the true value of which is hardly self-evident. Instead, it can be determined only by informed investigation and analysis.
Begin with an appraisal by Gary, the recognized expert. It is a far more logical course than suffering the consequences of proceeding while under informed.
Each coin-laundry is unique. Accurate determinations as to value demand evaluation of less obvious, yet important (and frequently irregular) issues that a “formula” cannot encompass. Think of a valuation “formula” as analogous to a very large circular waxing machine: it just won’t go into the corners!
You must discover value! Recognize that prospective purchasers must enable themselves to identify and evaluate all the significant details of a business before value can be accurately established.
MY LEGAL COUNSEL IS INCLUDED IN MY FEE:
My consultation fee includes my working with the attorney of your choice to incorporate laundromat specific terms of purchase which will both protect you and significantly improve your deal. It makes no difference where, in the U.S.A or Canada, he or she practices, my purchase agreement clauses will enable him or her to provide you with the best laundromat specific legal representation possible.
In some cases, I am available to personally represent you. Information on legal representation is available here*. You can verify Gary's N.Y. State Bar membership here.
* As to my Legal Representation Agreement, those who have decided to make an offer on a business located in NY State, and who contemplate my handling the transfer, will note that I offer a small financial incentive to consult with me before making the offer - this in response to the constantly recurring desire of new (suddenly much better informed) clients to change the terms of their initial offer.
A FEW WORDS IN CLOSING:
As laundrymat principles are universal (in my consultant practice, I decline to do site inspections - they are unnecessary to my analysis) the above is applicable to any laundermat in any area. However, although this piece was calculated to be informative, it should not be regarded as comprehensive; it is not. Fundamentally important issues such as: business analysis techniques that are unique to laundromats; specific terms of sale that are unique to washateria transactions and necessary for the protection of launderette purchasers, including the transfer of laundry machinery in excellent running condition; laundry mat marketing and demographics; and many other issues unique to laundromats are not even touched upon here. Please don’t use this limited information to go out there, buy a coin-laundry, and get yourself into trouble.The above is presented as a public service by the author, Gary Ruff. It is based upon his wide experience in the coin-laundry industry, including coin-laundry construction, his ownership of six coin-laundries in the N.Y. Metro area, his experience as a coin-laundry analyst and consultant, and as an Attorney at Law specializing in coin-laundries. As the information contained herein is based upon his own experience, the author reasonably believes it to be reliable. However, you use the information at your own risk.
You are invited to download more
information on Gary’s availability as
both a consultant and lawyer
Consultation Service Package: Full
analysis and consultation services are offered throughout the U.S.A. and Canada.
Consultation Service Package: Full analysis and consultation services are offered throughout the U.S.A. and Canada.