Originally posted – Sep 06, 2013
Curtis Kroeker is group general manager for BizBuySell.com and BizQuest.com, the internet’s largest and most heavily trafficked business-for-sale marketplaces. Since 1996, BizBuySell has offered tools that make it easy for business owners and brokers to sell a business, and potential buyers to find the business of their dreams.
BizBuySell currently has an inventory of approximately 45,000 businesses – spanning 80 countries – for sale at any one time and receives more than 1 million monthly visits. The site also features an extensive franchise directory, as well as an easy-to-use business valuation tool.
Thanks to a partnership agreement between BizBuySell and the Coin Laundry Association, PlanetLaundry.com hosts a customized BizBuySell search tool where visitors to the site can access relevant laundry-related listings. Those interested in finding a laundry for sale can tailor their search for the options most suitable to their situation: by state, county and asking price.
Exclusively available to CLA members through this partnership, members also can list their laundries for sale or generate a valuation report at a discounted rate by logging into their CLA member portal.
Overall, how is the “small-business-for-sale,” or “business opportunities,” market looking for the rest of the year and into 2014?
I think it’s shaping up well. Year-to-date, we’ve seen more activity – a significant spike that actually started a few weeks before the end of last year. That surprised us; we thought we’d see a pretty strong start, but not the sort of start we’ve seen.
Based on transactions reported to us voluntarily by brokers, Q1 was up 56 percent year-over-year, and Q2 was up 62 percent.
Three factors are driving this. One is the fiscal cliff at the end of 2012, which motivated a lot of sellers to start the selling process because they wanted to sell before the capital gains tax went up.
That’s why we saw the dramatic spike starting a few weeks before the end of last year. And I think that a lot of those transactions have probably carried over into Q1 and Q2 of this year, and probably even a few into Q3.
Two other factors that are underpinning this growth and that put us in great shape for the rest of this year and hopefully into 2014 as well is strong small-business performance. For a couple of years now, small businesses that were able to weather the Great Recession downturn have seen their profitability improve.
So, we have this strong small-business performance, which is coupled now with hopefully an economic recovery. It’s moving in the right direction, so that positions these businesses nicely for sale.
On top of that, the other factor is what I would call latent supply and demand. There are a lot of businesses out there that – from about mid-2008 until rather recently – may not have been able to be sold. So, there are now a lot of sellers out there who probably wanted to be sitting on a beach sipping Mai Tais for a couple years now. However, they’ve been keeping their nose to the grindstone and making sure the business survives and is well-positioned for growth. So, there is more supply out there than would normally be the case.
Encouragingly, I think there is also more demand. Normally, during a recession, people become disenfranchised with the corporate world, perhaps they get laid off and they turn to entrepreneurism. However, from mid-2008 through even as late as early last year, there was so much economic uncertainty that a lot of people who normally would have done that were hesitant to do so.
On top of that, it was difficult to get financing. Today, we’ve got that strong business performance I mentioned earlier and a promising economic recovery. Also, the capital markets are starting to open up, the stock markets up and housing values are up in a lot of markets. This gives people confidence to become entrepreneurs.
Are we going to continue to see these 60-ish percent year-over-year growth? Potentially, yes – at least for the rest of this year, because we’re going to be lapping last year. When we get to 2014, the growth rate is going to slow because we’re going to be lapping these really strong numbers. But I think the fundamentals are still going to be there, and we’re going to see a lot of activity.
Is it currently what you would consider a “buyer’s”or a “seller’s”market?
Right now, it’s still a buyer’s market. If you look at the long-term multiples – basically, revenue and cash flow multiples – that indicates who has the power. As those multiples go down, it indicates the buyers have more power. As those multiples go up, it indicates the sellers have more power.
What we see is that the cash flow multiple was on a long-term slide down to the lowest point we had ever seen since we started this in 2007; it bottomed out in Q4 of 2012. So, the best quarter to buy a business was Q4 of 2012.
Now, it has started to move up, but it’s still low, compared to historical averages. It’s still a buyer’s market, but those multiples are starting to move up, indicating that the pendulum is starting to swing back the other way. It has a ways to go before it swings toward being a seller’s market, maybe a couple years. However, it’s starting to swing back, and in a few more quarters, we should be back toward a more balanced market.
Right now, it’s a great time to be a buyer. Yet, it’s also a good time to be a seller because those multiples are moving the right way, and you are in a market now where you can actually sell your business.
What role has the financial lending market played? And in what direction do you see lending headed?
For the most part, lending disappeared in late 2008. Not only that, but people’s individual wealth also got hammered. People used their personal wealth – be it their 401(k) plans, their savings or a home equity loan – to come up with the down payment on a small business. And, back then, most people were not in the position to do that.
Simultaneously, the banks were not lending. Even those who wanted to become entrepreneurs and who had the confidence to do it found it difficult to move into the game.
Last year, that situation began to improve on two fronts. First, banks started to loan. And, second, in some markets housing values started to come back; also, the stock market started to come back. And, so far this year, both of those things have strengthened.
People’s individual wealth is moving in the right direction, enabling them to afford a down payment. At the same time, I think banks are prudently loosening up financing. Lending is important. It keeps the economy going.
Can you discuss your partnership with the Coin Laundry Association and PlanetLaundry, particularly from your company’s perspective?
We love our partnership with the Coin Laundry Association. We are the leading business-for-sale marketplace by a good margin. We have two to three times the visitor traffic of our next nearest competitor, and four or five times that of the third-place competitor.
So, we drive a lot of traffic to our individual site. But we also look for partners like the Coin Laundry Association to help us get the marketplace out there.
Obviously, those who are in specific sectors, such as coin laundries, are members of associations such as yours, and they have relationships with you. If they’re looking to buy or sell a laundry business, they’ll likely end up at BizBuySell.com. However, there is also a good chance that they’re going to have an ongoing relationship with the CLA, so we have place that relevant sector of the marketplace on your PlanetLaundry.com site. This way, the people who visit PlanetLaundry.com can find laundries there, and they can start the process immediately.
We love it, because it’s a way of extending our reach and providing a nice service to trade associations like the CLA. It’s great for laundry owners and potential investors to be able to commence that process on a site with an association with whom they have a relationship and with whom they have confidence.
What types of laundromat metrics do you follow closely, and where do those statistics currently stand?
Basically, we look at median asking price, median sale price, median revenue and median cash flow – as well as average revenue multiples, average cash flow multiples and the average sale-to-asking-price ratio. Those are the seven key metrics we track, in addition to numbers of transactions and numbers of listings.
Looking at 2013 year-to-date, versus 2012, for coin laundries, we see strong growth. Median asking price is up 21 percent, and median sale price is up 22 percent. This is despite the fact that gross revenue is up 2 percent.
In addition, what’s really up is cash flow, which is up 29 percent.
Although recessions are terrible in a lot of ways, they are good for getting business owners to focus. The poor performers probably go out of business, and the good performers weather the storm and tighten up their operations, and I think that’s what we’re seeing here. We’re seeing profitability come back; profitability growth is 29 percent.
The general story that we see nationally in all sectors is definitely reflected in the coin laundry statistics as well.
Are coin laundries one of your more active business categories?
We look at coin laundries and drycleaners together as one category, and it’s one of our bigger categories. It’s in the top 10.
The leading five categories for us are restaurants, auto repair, convenience stores, gas stations and general retail.
Depending on the exact month or quarter, the coin laundry category has been as high as No. 6 and as low as No. 8. Of course, this is out of dozens of categories, so it’s a strong category.
Interestingly, in terms of buyers, coin laundries are actually the sixth most frequently searched for category.
Also, within our top 10 states – which include Florida, California, New York, Texas, Massachusetts and Illinois – coin laundries rank even higher. In terms of searches, the category is typically fifth and sometimes as high as the third-place search category on a state-specific basis in some of our bigger states. This makes sense because some of those larger states are probably more urban.
Not only are more people looking for laundromats, but they’re getting some of the most activity. They are one of our stronger categories, in terms of people actually contacting sellers. Looking at the overall national average and then comparing that with the average activity sellers of laundries see, the laundry sellers almost twice as much activity.
What other services can BizBuySell offer laundry owners?
First and foremost, we are a marketplace for small-business transactions. However, we also provide education and resources to help people through the process. Buying and selling a business is a big decision, so one of the things we released in January 2012 was “The BizBuySell Guide to Selling Your Small Business,” which was written by business author Barbara Findlay Schenck.
It’s certainly not a replacement for a broker. Business brokers are an important and valuable resource for most sellers and buyers. However, this guide helps walk you through the process.
We also provide additional educational resources and articles on pricing, the most important things to do to get your business ready for sale and so on.
What’s more, we offer a valuation report, which can help sellers and buyers get a ballpark estimate as far as business value. We also feature a broker directory, which is the leading such directory on the web. It helps buyers and sellers locate, learn about and contact local brokers.
What are the keys to successfully buying a small business, such as a coin laundry?
The key is to buy at the right price. After all, you can buy a “bad business”or a “good business,” and as long as you get it for the right price, you’re in good shape.
Also, as you get into businesses and learning about them, look at their history and their track record. The best indicator of future performance is past performance, so really dig into the due diligence process. What’s been the employee turnover? What’s the relationship with any suppliers?
A third key is neighborhood demographics. What are those trends?
What are the keys to profitably selling a coin laundry business?
The keys to selling a business are basically the other side of that same coin.
First of all, you need to price the business right. You don’t want to price it too high, or else you won’t get any action. But you don’t want to price it too low, or else you’ll leave money on the table. Again, our valuation report is a great starting point.
Next, be sure to show a strong history of earnings. Show potential buyers the actual cash earnings of the business, not necessarily earnings from a tax perspective.
Also, you want to paint a picture for growth. The most important thing a buyer is going to be looking for is history, but painting a picture for growth like key demographic trends that your laundromat is well-positioned to take advantage of can help you get a better price.
What are the biggest mistakes to avoid entering into either endeavor – buying or selling a business?
There are a lot of mistakes that can be made. I would sum them up by saying under-preparation and underestimation. Ideally, you should start thinking about selling your business two to three years in advance. You want to start preparing then, and maybe being a little more diligent in financial reporting.
In general, there is an underestimation as far as the amount of effort it takes. To sell a business well, you want to plan in advance, and you want to give yourself a good six to eight months to sell.
For most sellers or buyers, it’s smart to work with a broker. Selling is a lot of work. Having the expertise and the bandwidth of a professional, accredited business broker, ideally with experience in your business sector, is going to be money well spent.
What’s the one thing you hope all laundry owners reading this interview will take away from it?
The biggest takeaway goes back to what we were talking about at the beginning. I’d like all small-business owners to understand that they have a sellable asset. Not all business owners understand this – a lot of them just close up shop or perhaps give away the business to a key employee.
You should understand that you have a sellable asset and that now is a great time to be a buyer, but it’s also a good time to be a seller. The market out there is strong and hopefully getting stronger.