Unveiling the Key Factors Industry Professionals Look for When Buying an Existing Laundromat
When considering the purchase of an existing laundromat, there’s a multitude of factors to examine beyond just the surface level.
In the words of experienced laundromat buyers and operators, a successful acquisition goes deeper than mere demographics, competition, and financial history. To ensure a sound investment, one must delve into less-obvious but crucial aspects of the business and its premises – infrastructure and safety, regulatory compliance, lease terms, customer base and reputation, marketing and branding, layout and customer experience, and long-term vision… to name a few.
This month, we asked a panel of industry professionals – comprised of laundromat owners, equipment distributors and business brokers – what they look for when considering purchasing an existing store.
The panel features:
- Carol Dang, Elite Business Investments
- Peter Mayberry, Mayberry Capital
- Matt Miller, Coin-O-Matic
- Brandon Schlichter, Investment Joy
- Lauren Schultz, Midwest Laundries/Fresh Laundromats
- John Vassiliades, J. Vassiliades & Company
By examining some of the key, often-overlooked factors discussed, you can mitigate risks and position yourself for a successful investment. Remember that every detail matters and contributes to the overall viability and profitability of your prospective laundromat endeavor.
What do you look for with regard to location? What makes a prime laundromat site?
John Vassiliades: Besides the obvious things to look for like demographics, competition, and density, the real test of a location of an existing store is primarily its financial history. Is the laundry doing well, and does it have a paper trail over the last three years that shows an increase in net cash flow in each successive year. Next, I look to see if there are any new laundromats moving in or have recently moved into the marketplace that may impact the business. Also, I look for any shifts or potential changes in the area’s demographics that might affect the laundromat’s business.
Matt Miller: I look for demographics that offer support to a laundromat business – with great parking, easy access, and high visibility. A prime site would include all of those elements at a fair price in a free-standing building.
Brandon Schlichter: I look at the local demographics and the competition metrics. Unless you’re doing pickup-and-deliver/wash-dry-fold, there are only so many self-service customers any given market can support. I’ve run into far too many people with stars in their eyes, making the assumption that they can take a location from 0 to 100 without any concern for how many customers actually exist in the market and whether or not it can support their business. You can’t get blood out of a turnip, and you can’t get money from someone’s pocket when they don’t exist.
Peter Mayberry: When I look for a location, I’m always looking for a high-traffic area where the demographics are right for a laundromat. I like high-traffic-count roads next to supermarkets. I believe most laundries only pull from around a mile, but when you have a destination that many people use every week for shopping or food, then you can pull from a wider geographic area.
I also look for enough parking in relation to the size of the building. If I have a high-traffic area that serves people’s weekly needs, along with good parking, I will almost certainly pull the trigger, because anything else is easy to overcome if those two things are in place.
I’m firm believer that, if you have a great location, even poor operators will make money – and, if you have a poor location, even good operators can fail.
Lauren Schultz: My preference is a stand-alone building with high traffic and high visibility. I always investigate zoning regulations that could impact my plans for exterior signage. The amount of parking is non-negotiable. I’ve walked away from otherwise perfect locations because there wasn’t enough parking. That’s where patience and being uncompromising on your criteria play an important role. Parking is the beginning of my customer experience and critical to a growing a successful, high-volume laundromat. Finding the right location can take a long time.
Carol Dang: The key items I look for in existing locations are visibility, parking, demographics, and competition. A prime location would have great visibility, and a huge parking lot with good egress and ingress. It also would be a densely populated area, as well as lower income with larger families.
Of course, competition in such prime areas is only natural and actually a good sign. However, if a competing laundromat is a brand new store that is much larger than the existing store we’re considering buying, I’d want to know how busy each store is, how close the two laundries are from each other, and what kind of equipment that competitor offers. Then, we’d need to know the terms of the existing lease.
As far as a store’s financials, what specifically needs to be reviewed? What are some red flags and discrepancies to look for?
Schlichter: I look for signs of a seller lying to me. I made huge mistakes with my first two laundromats, because I trusted the seller. He was a friend of a friend, so I thought I could trust everything he said. I’ve come to the realization that “sellers are storytellers.”
I can’t lose sight of the possibility that a seller is trying to sell me an outright lemon. Almost every seller I run into lies at some level – so I approach a laundromat purchase with the following question: why are they really selling the laundromat?
People sell profitable laundromats all the time, but rarely are they good deals. In today’s market, it’s almost impossible to find truly great deals, and I’m not in the business of buying someone else’s overpriced failure. You need to identify what stressors exist for the seller that could lead to an existing laundromat potentially being a good deal for you. Those stressors could be personal problems, company problems, or a host of other issues – the trick is figuring out what those stressors are. All in all, the key to the whole process is verifying each claim the seller makes with every resource you have available.
Mayberry: I don’t really care about the financials. I know what will work and what won’t. I look at the area, and if I know it’s a good location, I will pull the trigger.
Vassiliades: Ideally, I want to see a solid paper trail – such as three years of tax returns, 12 months of utility bills, recipes for cost of goods sold, and records showing the drop-off tickets. And red flags would be a lack of any of the above items that cannot be proven in other ways.
Miller: Be sure to verify the income with deposit slips and the expenses with actual receipts. The first thing I look at in an existing location is the ratio of utilities to the actual revenue. If those two factors are out of line, some questions need to be asked.
Schultz: I use utilities to validate the reported financials. You should only pay for what is documented and can be validated. I’ve reviewed businesses with detailed and accurate financial information, as well as those where you must work backward. The best skill to learn is how to determine a laundromat’s revenue based on utility consumption. This is especially true when dealing with laundromats that are still all-cash operations.
Dang: We look at the monthly income and expenses – including rent, NNN, payroll, utilities, PPT, insurance, repairs and parts, and cost of goods. Also, if the store offers wash-dry-fold services, how are the machines being started and how many pounds do they do; we’d look at the receipts for that segment of the business.
The other financial aspect is whether the laundromat is a card store or a hybrid location. I’d review the financials from the card system or the credit card statements. Is the store’s income on a downward trend, stable, or heading upward?
Some red flags I look for are:
- Low water usage.
- A store that doesn’t seem busy enough to warrant the income figures provided by the seller.
- Low repair and parts budgets, despite older equipment.
- New competition moving in close to this store.
How can potential buyers best assess a laundromat’s current equipment?
Schultz: I start by verifying the age of the equipment, using serial numbers. If you don’t know how to read serial numbers, a distributor or the equipment manufacturer can provide that information. Next, I’ll get a general sense of the equipment condition and upkeep by looking at the soap dishes and door gaskets. Those two areas are generally pretty telling.
Typically, we’re most interested in acquiring distressed locations. For our business plan, we know we’re are going to rehab the laundromat to our brand standards, which includes all new machinery. Even in acquisitions of that nature, there’s still resale value in some of the equipment.
Dang: The best way is to hire an independent repair person to conduct a complete evaluation of the equipment. I also would recommend that the water heater, plumbing, and roof be inspected.
Vassiliades: In nearly all cases, I encourage every buyer to hire an independent inspector to assess the existing equipment.
Miller: Potential buyers should ask for the last three years of service-related receipts. Work with a service technician or team you can trust. A straight-forward equipment distributor typically is a good resource and can help with serial number verification. Be aware that a majority of stores have outdated equipment toward the end of their lifecycles.
Mayberry: If the store is doing poorly already and has a bunch of old, outdated equipment, just plan to retool. If the store is doing well and making a profit with equipment less than 10 years old, there is a strong chance you can improve the store without retooling right away.
How do you analyze the competitive landscape of a marketplace? How do you determine if there’s room for this business to thrive?
Miller: Given what’s out there in the marketplace, there’s typically often room for a well-run laundromat. Of course, be sure to analyze the area’s current demographics. After all, many markets have seen massive demographic shifts in the last 20 years.
Mayberry: I don’t think I compete with most of the laundries in my area. We are usually going for a different type of customer. I don’t really pay too much attention to competition at this stage in my career. With that said, I’m very cognizant of any new operators entering the market. After all, you never know when the next person like you is going to come after you.
Schultz: We only enter a market if the competition is weak. I look for competition with old machines, dirty facilities, poorly trained employees, no marketing or branding efforts, and no signs of reinvestment in their business.
The details matter. I’ll visit the area stores as a customer to understand what it’s like to be a laundromat customer in that area. I look in the soap dishes, notice if there’s mold on the door gaskets, determine the percentage of machines that are out of order, talk with the employees, and read the online reviews. That experience provides excellent information to determine the next steps.
I have no interest in a market where there is already a well-run, premium laundromat. Oversaturated markets with laundromats offering similar quality, services, and amenities just split the business and weaken each store.
Dang: Some competition can be a good. Compared to the store I’m considering, I’d review how busy each other laundry is, what equipment they have and the condition of those machines, the vend pricing, the condition of the stores, their visibility, their signage, and their parking.
Schlichter: In general, I think most distributors have a great model for looking at general market competition and segments. Although their overall picture might come up a bit overly rosy, it’s easy to build an extra 20 percent margin into their scenarios to arrive at perhaps more conservative and reasonable numbers. If demographic mapping works for McDonald’s, why wouldn’t it work for my “McLaundromat?”
Vassiliades: I’m not as concerned with the existing competition as I would be if it were a new vended laundry being built. Of course, buyers should visit all of the competitive stores in the trade area – and actually do some laundry at each competitor’s facility. This way, they can observe the strengths and weaknesses of each competitor. It will help the buyers determine what must be done better in the store they are considering buying so that they can meet – and beat – the competition.
What should one look for in a laundromat lease, and why? Also, what aspects of a lease should be non-negotiable must-haves?
Dang: I’d look a length and terms of the agreement. I always advise my clients to have an exit strategy when purchasing an existing store. If you don’t have a long enough lease, you have nothing to sell in the future. A 10- to 15-year lease with some options on top of that is a good beginning.
Carefully review the triple net charges, and understand exactly what’s included – such as the roof, management fees, and property taxes. Additionally, how often has the NNN increased, or is it a fixed amount? It’s also important to see if there is a clause for “CAM reconciliation.” If so, review those reconciliation reports for the past two to three years.
When purchasing an existing store, it can be difficult to renegotiate the lease, since the landlord already has a paying tenant and not much motivation to change the terms. If you’re negotiating a new lease, make certain the options are transferable to an assignee, and negotiate a release of liability upon assignment or within a limited time period. I also would want to make sure the lease is easily assignable under the existing terms. Lastly, ask for a limit on the property tax portion on the triple net charges, especially if the shopping center is sold.
Vassiliades: Ideally, I look for a total of at least a 15- to 20-year lease – the longer, the better. In addition, be sure to have a clear understanding of how, when, and how much any increases in the base rent will occur, as well as what other costs you will be responsible for, such as real estate taxes, common area maintenance, and others. Also, the landlord should not unreasonably withhold his consent for you to be able to assign the lease upon the sale of the store. Plus, if the laundromat is located in a shopping center featuring a major draw tenant, the buyer definitely will want some protection should that major draw close or moves out, which likely would impact the laundry business. Lastly, be sure to receive the exclusive right within that center for all of the services you provide. To me, almost everything else in the lease will be negotiable.
Miller: With a laundromat lease agreement, you need to look at the costs and verify any pass-throughs. No doubt, have your legal team look at the document. Additionally, closely evaluate the condition of the building to avoid any unwelcome surprises, and meet with the owners of the real estate to evaluate their commitment to owning a well-run property. As for my non-negotiable must-haves, it has to be a lease length of at least 15 to 20 years, which gives the buyer time to make money and easily flip the store to a new owner.
Schlichter: Price and time horizons are critical. Since it’s unlikely you’ll own the location, you have to do some substantial math to plan your next five, 10, and 20 years at that location. There are going to be plenty of variables and problems that arise; however, renegotiating your lease and asking for givebacks from a landlord once a lease is signed is a tough road to walk.
You have to make sure that all of the negative externalities are addressed before you sign. Remember that the landlord needs to make some money at the end of the day, but you can’t take too much food off of your table and put it onto theirs just to get a deal done.
Too many buyers get excited about their deals and ignore the details. For example, we recently had a partner’s deal implode due to CAM fees – which were outrageous and weren’t in the original financial picture we were presented. The finish line is not the place to make emotionally charged concessions.
How does one investigate the existing customer base and its loyalty to that laundry business?
Schultz: Due to our business goals and the nature of our acquisitions of neglected businesses, these are not highly weighted considerations. I will read online reviews and visit the store as a customer, because I want to have a deep understanding of the starting point for our business.
Miller: I’d suggest frequenting the store, doing laundry there, and talking with the current patrons.
Schlichter: I talk to the customer inside my own laundromat, as well as the ones that go to my competition. I’ll ask what draws them to my location, what other laundromats they like or dislike, and most importantly why. Customers aren’t always right, but they can add a new perspective as to where the market stands and where it might be heading.
Vassiliades: This is reflected somewhat in the current store’s business, along with any online reviews.
Mayberry: I don’t investigate this. We expect to keep the current customers and attract more. There is no reason we should lose ground after taking over a laundry. If I do, I need to look at my management team right away.
Dang: Visit the store often at varying times and days, and look at the demographics. Also, visit the other laundromat in the area. Speak with the customers, and ask them how long they’ve been coming to the store, what they like about it, and what they’d like to see changed. I’d suggest being discreet when talking with the customers.
To potential buyers, how important is the store’s current reputation within the community? And how can they go about uncovering that reputation?
Vassiliades: The best way to determine a store’s current reputation is by reading its reviews, doing your own laundry at the store over several weekends, and talking to the customers. This enables you to observe first-hand how the store is being operated, as well as how you may be able to make any needed improvements.
If the current reputation is on the poor side, it shouldn’t be a major concern. Almost any laundromat’s reputation can be turned around over a period of time – usually about six months to a year – with a new owner, strong advertising, and improved customer relations.
Dang: I would check on social media – Yelp and Google reviews, and so on. However, look at these online comments with some sense of skepticism. Are the reviews truly constructive, or are they of a more vindictive nature?
Miller: The reputation is important if you simply want to take over the laundromat. But it’s not as important if you’re going to completely rehabilitate and renovate the location.
Schlichter: I’ll talk to the customers and review social media. If a laundromat is awful, the customers are more than willing to share any issues with the world. I’m more interested in locations with poor reviews. If you can figure out what’s wrong, you then can add value to the deal.
Mayberry: Bad reputations take time to reverse. It could take years to turn things around. You just need to factor that in when you decide to purchase the laundry. If you’re buying a store with a horrible reputation, you need to change the name and paint scheme on Day One.
What’s the best method for verifying that the business complies with all local, state, and federal regulations, including environmental and safety standards?
Schlichter: I’ve found that local fire departments, which issue occupancy permits, can be pretty awesome when it comes to regulatory compliance. If they don’t have an answer, they typically know who to call.
Compliance conversations don’t have to be adversarial. If you are proactive and demonstrate a willingness to work with them, they’ll work with you. Of course, if you’re concerned about this issue with a seller, always write those guarantees and warranties into the purchase agreement.
Schultz: This knowledge comes with experience. Networking with other business owners in your area is very helpful. We always join the local chamber of commerce and attend meetings. That is where we’ve met city officials, members of the buildings department, and inspectors – all great resources for that type of information. We’ve also learned a lot working with an architect, licensed contractors, and going through the remodel permitting process.
Vassiliades: The best way I’ve found is to contact the city or village business license department and water department. If there is a question regarding any environmental issue, especially if the building is included in the sale, then you should be requesting a recent Phase I ESA report.
Dang: I would start by asking the sellers if they have any documents they can provide, such as licenses, certificates, etc. If they don’t, you can check online or in person with the local building and safety department. Be careful and diligent – if you’re purchasing an existing laundromat, several current regulations may not have been in effect when the store was built.
Miller: Ask the sellers about any violations they may have received. Of course, verify this information with the city or local municipality. Also, be sure your attorney looks up the legal records of the existing owner and landlord.
Mayberry: Go to the city and ask. Most of these items are open record.
Do the business’ current marketing efforts and branding matter to you?
Miller: These absolutely matter, because there often is room for vast improvement in this area.
Vassiliades: It helps if the current branding and marketing are working and the store is doing well. However, if not, you may want to consider rebranding the store, or taking a different approach to marketing the business. Clearly, one red flag would be if the branding and advertising are being done well, yet the store’s income is still dropping year after year. In that case, definitely look for other causes and solutions.
Schlichter: Marketing and branding definitely matter, because marketing is one of the things I know can improve the bottom line. If a laundry business’ current marketing is garbage, I know I’ve got plenty of room to improve – a website, a Facebook page, a Google listing, and so on.
Mayberry: If I were buying a chain of laundries, it would matter. If it’s a one-off, it doesn’t matter to me at all. I know a lot of operators who spend money on dumb stuff when it comes to marketing, and I’ve been guilty of doing the same in the past. If you do things the correct way, word of mouth will be your strongest marketing campaign.
I’m not saying that other things don’t work, but I firmly believe that people talk, and your current customers are the best way to grow your business.
Schultz: This isn’t a consideration in my evaluation. I prefer a business that has no branding or marketing efforts. We implement our brand, which includes standard operating procedures and a marketing plan, immediately upon purchasing a business.
What major items do you look at when evaluating the condition of the premises itself, as well as searching out any needed repairs or renovations?
Vassiliades: After evaluating the income stream, I’d be looking at the infrastructure – such as the plumbing, the drains, and the electrical supply – to see if it’s adequate for adding more or larger washers and dryers. I also would inspect the water heaters and HVAC units to determine if they would need replacing now or in the near future. Additionally, check to see if there are any safety concerns not only in the store – like poor floors, bathroom fixtures, basement concerns and parking lot repair, but also checking with the local police and business associations to determine any history of crime in the area or involving the laundromat.
Schlichter: I look at the age of the machines, the interior and exterior features, the traffic flow, the creature comforts, and the amenities. I look for easy wins that will entice customers to return week after week. I want to have a better, safer, and more pleasurable overall customer experience than the competition. There’s always a way to be better than the rest.
Mayberry: I simply look at location at the right price. Anything outside of that can be rectified.
Schultz: I speak from the perspective of owning the real estate and, therefore, being responsible for all maintenance and upkeep. We’ll first look at the condition and capacity of the exiting utilities. That’s important because we know the new machines will have different plumbing, electrical, and venting needs than what is currently installed.
We bring in trusted contractors to assist with the rest of the evaluation and to get repair and replacement costs for the roof, the rooftop units, and the parking lot.
Dang: Look at everything – floors, bulkheads, folding tables, seating, walls, lighting, and interior and exterior signage. I also inspect the ceiling for any staining that might indicate leaks. Additionally, look under the bulkheads to see if there are any leaks or signs of pest infestation.
Lastly, what are some less-than-obvious factors to consider before making an existing laundromat purchase?
Miller: Two additional factors to consider would be how the landlord maintains his properties and the buyer’s long-term plans for this investment.
Mayberry: Consider purchasing the building. In my case, I own the buildings my laundromats are in, so I know I have an exit strategy. I can sell the business, or I can sell the business and building at any time. If you can obtain the real estate with the purchase, it really doesn’t matter if you break even after all the bills are paid. You’re paying down principle on an asset that likely could double in value in seven to 10 years.
Schultz: One factor you want to be careful not to overlook when purchasing an existing store is the layout. Even if you renovate, you’re hooking up to the existing utilities, so you will have the same general layout. Customers don’t like being cramped together. Remember, your goal is to increase revenue, which means larger crowds. If the aisles are tight, they’re only going to get tighter when you add higher-capacity machines and more people.
Vassiliades: A key factor that’s often overlooked involves the buyers and whether or not they’re interested in getting into this business for the right reasons. Potential buyers need to be aware of the time and financial commitments required to purchase and operate a thriving laundry business.
Dang: I like to go with a gut feeling. If there’s something that doesn’t feel right, look into it. All in all, with an existing laundromat, do your due diligence and make absolutely certain all of your questions are answered to your complete satisfaction.
