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Future of this Industry

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  • 1.  Future of this Industry

    Posted 13 days ago
    Edited by Tony Kim 13 days ago
    My wife and I have been actively searching for a coin laundry to purchase for the past few months. There are a few that I'm interested in, however the thing that shocked me a bit and opened my eyes toward the long term future is the fact that these businesses were purchased at significantly higher prices by their current owners and are now being sold at big losses. When I pressed the broker on whether or not I'd be investing a huge sum of money into an industry that was in decline, he seemed to suggest the place was mismanaged and the industry is highly susceptible to competition. He did confirm that net income was significantly higher back when the current owners made their purchases.

    I have trouble believing my broker's suggestion that all of the businesses I have looked at have declined in value because it's their fault for mismanaging their businesses and because of local competition.

    I'm curious to know your thoughts on why net income and subsequently, the prices of the mats I've seen here in Los Angeles have been going down. Has the industry, in fact, experienced somewhat of a decline? I'm looking to buy a mat that currently nets six figures annually with little to no financing, but not if I will be selling the business in 10 years at a big loss.

    Thanks in advance for your help!

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    Tony Kim
    Tony Kim Person
    Los Angeles CA
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    Get the most out of your laundromat with FasCard - December 2019


  • 2.  RE: Future of this Industry

    Posted 13 days ago
    Please keep in mind that many of the successful Laundromats are not being offered for sale. The stores being sold after a year or two of purchase were probably oversold during the first sale by the broker and owner.

    In ten years it is likely that any Laundromat will decline in value due to aging of equipment, shorter remaining lease term and progressively higher rents

    You preserve value by good management, business promotion and upgrading equipment. Be cautious if your broker:
    1) Asks you to sign a non-disclosure agreement.
    2) Refuses to co-operate with other Laundromat brokers.
    3) Tells you tax returns are unavailable.
    4) Provides a cookie-cutter explanation for the reason the seller wants out of the business (retiring, other business interests, etc.) when ownership has been two years of less.
    5) Suggest coin count collection period is a reliable verification of income.
    6) Fails to explain that numbers listed on current owners income and expense statement will not necessarily be the same for a new owner (current owner has undervalued property insurance, paid cash under the table to employees, under valued business personal property tax, listed inadequate repair labor costs because of doing their own repairs, etc.)

    In the Los Angeles marketplace there are a number of brokers who have historically not provided adequate information to new buyers. If you want additional information feel free to send me a private post.

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    Larry Larsen
    www.Laundromat123.com
    Distributor Member
    Consultant - Advisor
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    Get the most out of your laundromat with FasCard - December 2019


  • 3.  RE: Future of this Industry

    Posted 13 days ago
    Hi Larry,

    Appreciate the detailed response...and I can relate to what you are saying about some of the local brokers in my area. I might very well take you up on your offer.

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    Tony Kim
    Tony Kim Person
    Los Angeles CA
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    Get the most out of your laundromat with FasCard - December 2019


  • 4.  RE: Future of this Industry

    Posted 13 days ago
    Edited by Anderson 13 days ago
    For Southern California, from the sales I've seen in the past 5 years (and asking prices), prices for laundromats are increasing, not decreasing.
    The ebitda multiples are rising, not falling.  Maybe one of the large brokers can chime in to confirm this.

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    Anderson
    Camarillo CA
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    Get the most out of your laundromat with FasCard - December 2019


  • 5.  RE: Future of this Industry

    Posted 13 days ago
    I have three locations.  One in each adjacent town.   My best facility is now my worst performing facility.  My worst performing facility is now my best.   Overall.   In my case it is purely competition.    There are a tremendous amount of fuel stations with an adjoining laundromat.   Everyone will have their own personal thoughts about how to weather the competition,    People in general will go to the first decent laundromat.   I think a good example is a laundromat I considered purchasing in Houston, Texas.   Everything appeared good as long as the revenue stream did not change.   At any given time I passed by there, I counted roughly 50 vehicles in their parking lot.   The location was a Spin Cycle as was being sold for $450,000.    They gave me all their numbers.   $5,000 rent, $21,0000 + gross are the two that I recall.   Another laundromat opened three miles away.  The cars in their parking lot went from 50 to 30.  The laundromat was never sold and closed.  The location was vacant for two years.  It has now been re-opened and for all account appears to be successful.  I seriously doubt the rent is $5,000.
    I have only tried the laundromat business.  I operate on the premise that I can withstand competition.  When things are bad I still make some profit.  When things are good that is great.  Keep everything affordable for yourself even if it is used equipment.  Of course keep all your equipment running.  Ask yourself if you can "weather" it out if a new laundromat is built across the street from you.   I do understand when business brokers say "mis-managed."  But I believe that is like saying "irreconcilionable differences." So I would be more wary of competition and keeping your costs especially your lease under control.


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    Michael Foreman
    Michael Foreman Person
    New Caney TX
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    Get the most out of your laundromat with FasCard - December 2019


  • 6.  RE: Future of this Industry

    Posted 13 days ago
    Michael,

    Wait-what?  The laundromat often had 50 cars in the parking lot and only grossed $21,000 a month?  Something doesn't sound right.  It must be a Socal thing.

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    Larry Adamski
    Muskegon Laundromat
    Muskegon, Michigan
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  • 7.  RE: Future of this Industry

    Posted 13 days ago
    The place was booming then along came a single competitor.    A single competitor brought the business down.

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    Michael Foreman
    Michael Foreman Person
    New Caney TX
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    Get the most out of your laundromat with FasCard - December 2019


  • 8.  RE: Future of this Industry

    Posted 12 days ago
    Michael,
         Although you feel comfortable judging Laundromat usage by driving past and doing vehicle counts. I would urge less experienced potential investors in spending entire days counting actual machine usage.
         Over the years I have been surprised at how many buyers base their due diligence conclusions of income potential on short visits at a variety of times. Many Laundromats are morning stores, other evening stores and still others with customers evenly distributed throughout the day. Short visit will not reveal the store pattern of use.
         A large number of new owners have not used a Laundromat in decades, if ever. If you can afford to buy a Laundromat, you likely don't use them on a regular basis.
         I advise those seeking to buy their first Laundromat to start using Laundromats. Spend time understanding the business and not just relying on recommendations of others.
    sales pitches and information of brokers and owners.

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    Larry Larsen
    www.Laundromat123.com
    Distributor Member
    Consultant - Advisor
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    Get the most out of your laundromat with FasCard - December 2019


  • 9.  RE: Future of this Industry
    Best Answer

    Posted 12 days ago

    Generally speaking, I think the outlook for this business is fine.  It's no better, no worse than others.  I think there's opportunity in areas outside traditional coin business, like drop-off and commercial accounts; they are more labor intensive, but they certainly exist. 

    As far as business value declining over time, that's an interesting discussion.  First, the addition of a competitor will certainly diminish the value of an enterprise.   There's a finite number of customers in your service area and having another store is bad news and it's out of your control. 

    IMO, the other reason businesses decline in value is owners don't put money back into them.  It's not just machines, either.  It's painting, fixtures, HVAC, infrastructure, you name it.  Laundries get the holy hell beat out of them every day.  Successful long-term owners stay on top of those things and factor them into their budgets/model.  Rookies get intoxicated by the pro-formas they see, which exclude capital improvements and one time expenses, like replacing AC units, signs, you get the picture.  They get five years in and they have a store that is run down, needs a lot of love and money, yet the owner is still expecting to get a generous multiple and can't figure out why nobody is interested in buying their store.  So yes, the value of the business will diminish over time, but there's usually a good reason why.  Most of the stores for sale I've seen fall into this category.  My advice is to budget at least 10% of your revenue for capital improvements and stay on top of things.  If you can't make the numbers work adding this in, you're doomed, at least in my opinion.  

    Best of luck in whatever direction you go.  I think this is a pretty cool business.  There are many ways you can be successful, plus it can be as structured or flexible as you want.  You can't say that about a lot of business opportunities. 



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    Paul Kludt
    Multi Store Owner
    Lake Worth Coin Laundry
    West Palm Beach, FL
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  • 10.  RE: Future of this Industry

    Posted 12 days ago
    Hi Paul,

    Thanks for the detailed response. I must admit that I am among those that are dazzled by the cash flow potential of the laundromat business. I'm more used to jumping for joy if I find a property that will yield 5% or higher. But now all of a sudden, I'm looking at an asset class where my path toward being able to leave my J.O.B. (just over broke) becomes crystal clear, thanks to the potential 20%+ return on your money.  I don't care if it is dealing with children running around or fixing dirty machines or sweeping the floor. As long as it is work being done for your pride and joy business, I firmly believe it beats working in a high pressure environment as a fund accountant for a high profile asset management firm helping your jerk higher ups get rich.

    I guess competition with other mats is something that we cannot control. The crazy thing about the areas I'm looking at is that within any given mile radius, you will find upwards to 10 different mats and each of them are doing business. Hopefully, this is the type of area that can be less affected by the opening of a new store and more dependent on how well you run your business. Your advice to allocate a set amount of funds toward capex makes a lot of sense also. I've seen a good amount of mats now and there are some that are seriously run down and some have machines that look like they're 20 years old. It's pretty obvious the owners have been delaying their cap expenses for as long as possible and just plan to sell their business to the next sucker instead of making the substantial investments that are needed to get the properties back into good condition. And a lot of the agents in my area (Koreatown Los Angeles) prey upon the unsuspecting buyer sitting on some cash and looking for a way to support his family.

    Thanks again for your kind words of wisdom!
    Tony

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    Tony Kim
    Tony Kim Person
    Los Angeles CA
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    Get the most out of your laundromat with FasCard - December 2019


  • 11.  RE: Future of this Industry

    Posted 11 days ago
    Very, VERY well said Paul! In my opinion, this industry is changing rapidly, whether that's for the good or bad depends on your perspective and ambitions. There is more opportunities in our industry to thrive and grow than ever before but the days of the small, basic, simple business are few and far between.
    Tony, your desire, ambitions and grit are what allows people to thrive in this industry. If you have discipline (I don't know you) then I suspect you will do well. Best of luck!




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    Dave Menz
    Queen City Laundry Chain
    https://www.queencitylaundry.com
    HappyNest Laundry Pickup & Delivery
    https://www.happynest.com
    Cincinnati, OH
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    Get the most out of your laundromat with FasCard - December 2019