by Randy Dobbins | to the blog
I remember the first time I called Listbroker about the neighborhood laundromat.
He was nervous, practicing what to say and oddly wishing it would go to voicemail.
When I heard the ring on the other end of the line and I struggled between letting it ring and hanging up, I told myself...
"You will regret the things youNOdo more than the things thatto beAgain.„
So I let the phone ring and as expected it went to voicemail. I left a quick message explaining who I am and that I was interested in finding out about a local laundromat that was for sale.
But I wasn't always so brave.
It was 2014, and for years my wife and I had been restless. Tired of the 9 to 5, tired of just walking the path of life. We knew we were capable of more.
It felt like the right time to change things up, but we had no idea what or how. We soon realized that owning a business could be the game changer we were looking for.
But we were worried about taking that first step; our minds were filled with fear and doubt.
We looked at a number of companies from a wide variety of industries and after extensive research, we found just the thing.
We wanted to have a laundry room.
[Spoiler alert: our first store did so well that we bought a second one! If you want to keep an eye on what we're up to, check out ourPractical guide HERE.]
That's why we were so intrigued...
8 reasons why a laundromat was the right business for us:
- 1. Cash flow – Even a small website can generate several thousand dollars in profit every month.
- 2. Increase in asset value– As the company's revenue increases, so does the value of the company itself.
- 3. Passivity and minimum cash investment- Laundromats require a much smaller cash investment than almost any other business and can be run relatively passively in just a few hours a week.
- 4. Quick Equity – Commercial loans are usually only for a 5-year term, so the principal builds up very quickly.
- 5. Easy financing– Even first-time homeowners can get a home loan relatively easily, and many sellers are open to self-financing.
- 6. Financing is self-sufficient– The company itself pays the monthly installments of the purchase loan.
- 7. Significant Payment Amount– Due to the rapid accumulation of capital in the company, in a few years the company will have free and unimpeded ownership and can be sold for a very good sum.
- 8. It's a "core" business – People have to do laundry, no matter what the economy is doing. (In fact, our laundromats have remained open during the COVID-19 quarantine while other small businesses have had to close. Laundry is a must!)
our target business
We decided early on that we wouldn't invest more than $50,000 in a company.
So we started looking for dry cleaners for sale.
One was too far away, another the seller looked incomplete.
So we found it.
And we couldn't believe the coincidence. The unattended laundryat our neighborhood mallit was for sale. And they just dropped the price from $150,000. The new list price was $129,500. (Hmm… a motivated seller?)
But we had agreed to only invest $50,000 of our cash in one company.
So we knew we had to do the rest through funding; or a purchase loan or maybe even the seller would be willing to take on the financing?
We weren't sure.
So I made that fateful call I mentioned earlier and asked the agent for more information.
He called me back and we arranged to meet at the dry cleaners the next day to discuss further details.We went to the laundromat the next afternoon knowing we had a diamond in the rough on our hands. It needed a major cosmetic makeover, but the customer base was strong and revenue consistent.
But we still had work to do before we moved.
What purchase price are we comfortable with? And if the seller is as motivated as they seem, would they accept an offer below the question?
Shall we dive into the numbers?
We made some estimates, considered what it would take to improve the store, and decided to offer him $105,000 and let him fight back if he wanted to.
Below are the first numbers we ran.
We use a purchase price of $105,000 with a 35% deposit.
This meant that we would pay a $36,750 deposit and finance the remaining $68,250. We had a rough idea that, based on the broker's information, a lender would give us rates in the 8.25% range over 5 years.
So our initial investment would be the initial payment ($36,750) plus an estimated initial cost of $12,400 for a total investment of $49,150.
Perfect. This would bypass our target investment exposure of $50,000. (But again, if the seller is willing to take out a larger loan, your cash needs may be much smaller.)
Once we knew how much money we were going to invest, it was time to estimate the profit and return on our investment based on the laundry's history to date.
Based on some historical financial data provided by the seller, we took the average annual gross income for the last 3 years, subtracted the last annual operating costs (expenses), subtracted the annual debt payments we would be making and determined our Annual Profit/Cash Flow.
(Note: Lastly, we reviewed the seller's bank statements, tax returns, and income/loss statements. These documents allowed us to validate the reported income/expense/profit amounts. We detail how to analyze a laundry purchase in ourofficial guidewe mentioned above. We've also included calculators like the one above so you can find the value of a destination laundry, calculate gross/net income, do due diligence, etc.)
Well, back to the numbers...
After checking the approximate number of sellers, we found that their average annual sales over the last three years was around $139,846 and their expenses were $90,276. After subtracting our loan payments of $16,704, we would have net income of $32,866.
And since our initial investment was $49,150, we would see an ROI of almost 66.9%.
But this whole scenario actually depended on the sellerto acceptour offer of $105,000.
The adventure has begun
So the $105,000 offer went to the seller.
And we wait. What felt like forever.
After some back and forth, the seller agreed.
And so began our custody period!
We then spent an entire week researching how to do due diligence; This meant confirming financial reports provided by the vendor, performing equipment inspections, etc.
We also convinced the seller to provide financing, which was a bonus. Then there were some negotiations with the landlord about renting. (We've documented the buying process in much more detail in our previous blog posts.)
And on February 28, 2015 the warehouse closed and our dream of a passive business came true.
At 5 am, the salesman accompanied us and handed us the keys.
And at 6:00 sharp, the automatic locks on the doors were disabled and our first customer walked through the door, clothes in tow. All the while, unbeknownst to us, backstage we were celebrating his arrival as our first official customer.
My wife and I celebrated by spending a quiet afternoon together; We had lunch and went to the cinema.
And all the time we are surprised by the idea that we are making money even without being there.
****... AND NOW AN UPDATE! ****
We bought a second laundry a year later for $28,000, so we haddolaundromats for several years. They are still buzzing and making us money every month.
For the first location, we did some cosmetic updates (paint, wall paneling, epoxy flooring) and replaced some washers and dryers. Gross revenue wasfrom $125,364 (previous owner in 2014) to $155,200 just one year later. This resulted in a net income of $49,864, well above our estimate of $32,866.
Our second year, we bought the other laundromat. The second location is smaller but makes money!
As of the end of 2020, the combined gross sales of both stores were $238,662. Net income at $81,664. and that waswhilea pandemic! That's a great thing about the laundry industry... laundry is a necessity. When the pandemic started, business was affected, but within a few weeks everything was back to normal. I am still very grateful to have owned a business that was labeled 'essential' during this chaotic time.
For any business, this income is quite decent, but for asemi-passive parcial tensebusiness, it's still amazing, even for us.
Buying a laundromat was one of the best decisions we've ever made, and for all the reasons we expected...
- 1. Cash flow– Our two affiliates combine to generate over $6,000 a month in profit
- 2. Increase in asset value– We purchased our two laundry rooms for $105,000 and $28,000 respectively and are now worth over $320,000 in just a few years.
- 3. Passivity and minimum cash investment –We run our two laundromats for a total of about 8 hours a week and only invest the initial $49,000 and $28,000 (cash payment for the second laundromat).
- 4. Quick Equity– We funded our first business in 5 years and now it's ours for free. In the second store, we paid R$28,000.00 in cash and the amount is now approximately R$75,000.00.
- 5. Easy financing– We were first-time owners and were able to get the seller to provide financing with very little paperwork. (We were also approved for conventional financing, but turned it down because the seller agreed to direct financing.)
- 6. Financing is self-sufficient– The monthly installments of the acquisition loan are borne by the company itself. Thank you customers!
- 7. Significant Payment Amount- When we're ready to hang up our keys, we can sell them and go home with around $320,000 in cash.
- 8. It's a "core" business – Regardless of the economy, business has always been strong and stable, even during recessions and pandemic lockdowns.
And as you already know, we are also proud of the work we put into our "Laundromat101 Complete Guide to Buying a Laundromat“.
It comes with all kinds of bonuses: a download of spreadsheets, calculators and formulas that we use to find, analyze, buy and run our own businesses, and lots of other good stuff. So if you're willing to look for it yourself,Click here to have a look.
Well, you've already read about our ownership process, but let's stop for a moment.
For some of you, this might be your first stop after Googling dry cleaning information on Google and you're still trying to figure out if a dry cleaner is right for you or if you want to start a business.no.
Or maybe you know you want a laundromat but don't know where to start.
If any of these things sound like you, then you need toDownload a copy of our laundry business planner. It's free!
Just enter your name and email address below and it'll be on its way to your inbox in seconds.
We created it for anyone interested in having a laundry room, and we believe in it.it's so important to getINTESTINEI'll start that we donate. And we don't stop there. We'll send you some more goodies to keep you going.
We are here to help.
What do you have to lose?
And finally, if you're the curious type and want to see some before and after photos of our first casting and some distorted photos of before our second casting,see THIS post. Or just start exploring the site, there's so much more to see!
Until next time…