Price and Evaluate Coin Laundries

Price and Evaluate Coin Laundries

Coin Laundries

From Business Reference Guide

NAICS: 812310

This industry comprises (1) establishments primarily engaged in operating facilities with coin-operated or similar self-service laundry and drycleaning equipment for customer use on the premises and (2) establishments primarily engaged in supplying and servicing coin-operated or similar self-service laundry and drycleaning equipment for customer use in places of business operated by others, such as apartments and dormitories.

SIC – 7215-01

Number of Businesses / Units – 22,84

Rules of Thumb

  • 100 percent of annual sales plus inventory
  • 1 to 1½ times annual sales plus inventory
  • 3 to 5 times SDE includes inventory (higher multiple for newer equipment and long lease)
  • 4 to 5 times SDE plus inventory—assumes long-term lease (10+ years) and newer equipment (3–5 years old).
  • 5 to 6 times EBIT
  • 5 to 6 times EBITDA

Generally 2.5 to 5.0 times annual SDE; depends on various parts of the U.S. California, for example, sells between 4 and 5 times SDE, whereas in Nebraska it’s 1.5 to 2.5 times SDE.

Pricing Tips

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.

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 affect the accuracy of an analysis. Thirdly, many commercial washers now offer surreptitious programing which can significantly impact water usage (e.g., Wascomat ‘Generation 6’ washer can be adjusted to utilize 1.2 to 1.9 gallons of water per lb. of laundry – a maximum differential of 58.3%!).

Source:An excellent article by Gary Ruff, an industry consultant who is also an attorney. Gary Ruff can be reached via his informative Web site: www.laundromatadvisor.com or at (212) 696-8502 or (631) 389-280,  He maintains two offices; if you need advice or legal services in the coin laundry business—he knows his stuff.

Depending on the location, competition and most of all the lease, % of rent to sales and age of equipment.

Coin laundries normally sell for a multiple of their net earnings.  The multiple may vary between three and five times the net cash flow, depending on several valuation factors.  The following primary factors establish market value:

  • The net earnings before debt service, after adjustments for depreciation and  any other nonstandard items including owner salary or payroll costs in services.
  • The  terms and conditions of the real estate interest (lease), particularly length; frequency and amount of increases; expense provisions; and overall ratio of rent to gross income.
  • The age, condition and utilization of the equipment, and leasehold improvements; the physical attributes of the real property in which the coin laundry is located, particularly entrances/exits, street visibility and parking.
  • Existing conditions, including vend price structure in the local marketplace.
  • The demographic profile in the general area or region
  • Replacement cost and land usage issues.

This resale market standard assumes an owner/operator scenario, with no allocation for outside management fees.  Marketing time for store sales averages 60 to 90 days, depending on price, financing terms and the quality and quantity of stores available at the time of sale.  Coin laundry listings are generally offered by business brokers who charge a sales commission of 8 percent to 10 percent.  Many coin laundry distributors also act as brokers.  The accepted standard  of useful life for commercial coin laundry equipment is as follows:

  • Topload Washers (12 lbs. to 14 lbs.): 5-8 years
  • Frontload Washers (18 lbs. to 50 lbs.): 10-15 years
  • Dryers (30 lbs. to 60 lbs.):15-20 years
  • Heating Systems: 10-15 years
  • Coin Changers: 10-15 years

Source: Laundry Industry Overview, Coin Laundry Association, www.coinlaundry.org, An excellent and informative site.

One Industry Expert has reported that a review showed that several hundred sales were for 80 percent of the asset value of  the laundry.

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.

Determine the age and condition of the equipment. Inspect the water heating systems, as this is many times the most expensive single component to replace. These two observations will go a far way in determining an asking price, or variance from the standard of 100% of gross revenue as an asking price. Another great metric is determining water usage. Quite often water companies will sell water in HCF or Hundred Cubic Feet Units. 7.48 gallons of water is equal to one cubic foot of water, so 748 gallons of water equals a Hundred Cubic Feet. A standard top loader uses 30 gallons of water, and the 30 and 50 pound units are multiples of the top loader. The dryer revenue should equal at least half of the washer revenue, up to 100% of the washer revenue.Rising utility costs are an issue. I would recommend an analysis of the cost per wash and dry load, to insure a reasonable profit per turn.

Location is very important. Good locations are in densely populated areas with high percentage renters and low-to-mid income.

Population demographics within 1-mile radius should show high percentage renters (50+%), low-to-mid income, limited competition, larger family size.

Coin laundries normally sell for a multiple of their net earnings.  The multiple may vary between three and five times the net cash flow, depending on several valuation factors.  The following primary factors establish market value:

  • The net earnings before debt service, after adjustments for depreciation and any other nonstandard items including owner salary or payroll costs in services
  • The terms and conditions of the real estate interest (lease), particularly length; frequency and amount of increases; expense provisions; and overall ratio of rent to gross income
  • The age, condition and utilization of the equipment, and leasehold improvements; the physical attributes of the real property in which the coin laundry is located, particularly entrances/exits, street visibility and parking
  • Existing conditions, including vend price structure in the local marketplace
  • The demographic profile in the general area or region
  • Replacement cost and land usage issues

This resale market standard assumes an owner/operator scenario, with no allocation for outside management fees. Marketing time for store sales averages 60 to 90 days, depending on price, financing terms and the quality and quantity of stores available at the time of sale.  Coin laundry listings are generally offered by business brokers who charge a sales commission of 8 percent to ten percent.  Many coin laundry distributors also act as brokers.

Source: www.coinlaundry.org Coin Laundry Association

The most difficult evaluation is the age and condition of the equipment. Industry-wide there seems to be a reluctance to replace equipment near to or at the end of the life cycle. As a result many owners decide to sell rather than improve. The buyer then faces the realization that within a short time frame an investment in equipment will be necessary. That has to factor into the equation of value, particularly in this category, since the equipment is the primary revenue generator. Refurbished or used equipment is an option here, and some is reasonably priced. Replacement of some of the equipment, or the equivalent value in credit in the offer to purchase or sales agreement, may need to be considered in order to facilitate a sale.

Coin laundry business is predictable. It does not jump up and down or respond to marketing as quickly as, say, a restaurant would. Having said that, the flat trend, old but functional equipment and slightly run-down interiors, get about 5 times the SDE; the newer equipment, crisp and clean interior with slight uptick in historical volume trend, tends to get high multiples. The annual sales number around $180,000 seems to be almost magical. Over that amount of annual sales, demand is huge, since they can be flowing around $100,000+ in profits.

Depending upon the market or location of the Laundromat, pricing can actually range between 1 and 1.5 times gross annual sales.

The good news is that, although banks want buyers to meet the same requirements for existing laundries, they can purchase a lower risk opportunity that requires less cash, because existing laundries, in most all cases, cost far less for the investor.

Existing laundries often have leaseholds grandfathered in, so buyers end up paying three to four times the net cash flow for an up-and-running business and save tons of money. Let’s say that a laundry has a net cash flow of $75,000. You’ll likely pay $225,000 to $300,000, and the bank would need 30% of these numbers. This saves more than two-thirds of the cash out of pocket compared to the new laundry scenario.

Fortunately, the current state of our economy has not affected the fact that people need to cover the bare necessities such as eating and washing clothes. Many of my customers have maintained their margins, and others who aggressively execute their marketing plans are actually seeing increases in revenue.

Source: “New vs. Existing Stores: Starting a Coin Laundry in a Tough Economy” by Robert J. Renteria, WashPro USA, www.american coinop.com

If you lose your lease, it is very expensive to set up in a new location: machine pad construction (far more expensive if there is a basement); sufficient gas supply for dryers; lawful wastewater egress; plumbing (including sufficient water supply); three-phase and single-phase electrical layouts; dryer venting system; flooring, ceiling, and counter space. Accordingly, laundromats need to have a long and easily assignable lease.

Source: Gary Ruff, www.laundromatadvisor.com.

  • Location and demographics. It’s important to study the surrounding area for city planned changes or housing changes that may affect business performance.
  • Larger multiplier number used for newer equipment & long-term lease
  • Age of equipment a huge factor in price determining. Fold and wash service available?
  • They typically sell for 100% to 125% of the annual sales. Location, age of machines, total appearance very important.
  • Typically laundries sell for between 55 and 65 times monthly net.
  • Net Income should = 1/3 of Gross Income. Sales price is 5+ x Net
  • Coin-operated laundries typical based on a 20% return on capital
  • Try and achieve a 25% return on capital; not including owner’s salary.
  • Utility costs are the single largest operating expense in a coin laundry.

Source: Coin Laundry Association

Higher multiplier for businesses with newer equipment (3–4 years) and long-term lease (10+ years) increase business value.

Here are the steps used to calculate how many times the washers would have to be used to use all the water reflected in the water bill:

  1. Get the water bills for the last year,
  2. Since water bills are usually in cu. ft., you will have to figure out how many gallons of water were used (there are approximately 7.5 gallons per cu. ft.),
  3. Find out how many gallons of water the particular washer type uses,
  4. Calculate how many times the washers have to be used to use all the water based on the bill. That should give you the number of washes.
  5. Multiply that by the cost per wash. The national average for ‘turns’ is the number of times the washer is used.

Dryer income is generally half that used of washer income, and vending income can produce 10 percent of total. Historically, laundries have been priced to sell at some multiple of their annual gross. Primarily because of tradition, this multiple varies from one section of the country to another, but normally it’s within the 90 percent to 150 percent range. Variations on the annual gross formula include such rules of thumb as 12 to 18 times monthly gross, or three to five times annual net income (before taxes).

Expert Rating

Amount of Competition2.40(Low=1 : High=4) Amount of Risk2.00(Low=1 : High=4) Historical Profit Trend2.00(Down=1 : Up=4) Location and Facilities3.00(Poor=1 : Excellent=4) Industry Trend2.00(Declining=1 : Growing=4) Ease of Replication2.40(Easy=1 : Difficult=4)

Benchmark Data

StatisticsNumber of Establishments22,848Average Profit Margin3.1%Revenue per Employeen/aAverage Number of Employees2Average Wages per Employee$15,718

Source: IBISWorld, May 2012

Products and Services SegmentationWasher services55.2%Dryer services33%Self-service dry cleaning5.3%Other5.2%Commercial laundry services1.3%

Source: IBISWorld, May 2012

Major Market SegmentationRenters using laundromats38.6%Renters using on-site laundry facilities22.4%Commercial, industrial, service industries and routes16.9%Colleges and universities13.1%Homeowners9%

Source: IBISWorld, May 2012

Industry CostsProfit3.1%Wages17.7%Purchases23.0%Depreciation4.0%Marketing2.0%Rent & Utilities23.2%Other27.0%

Source: IBISWorld, May 2012

Market ShareCoinmach Corporation12.8%Mac-Gray Corporation7.3%

Source: IBISWorld, May 2012

Enterprises by Employment SizeNumber of EmployeesShare1 to 490.4%5 to 96.4%10 to 192.0%

Source: IBISWorld, May 2012

Average store 2500 sq. ft. utilities 25- 35% payroll 10% occupancy costs 25% gross profit 40%.

Coin laundries can range in market value from $50,000 to more than $1 million, and can generate cash flow between $15,000 and $200,000 per year.  Business hours typically run from 6 a.m. to 10 p.m. The stores usually occupy 1,000 to 5,000 square feet of retail space, with the 2002 average being 2,260 square feet.  New coin laundries are valued based on actual construction and equipment costs, while existing coin laundries are valued based primarily on revenues.  Coin laundries are perfect examples of passive income generators.  Coin laundries are also referred to as coin-op laundries, coin-operated laundries or Laundromats.

Dryer income is usually expressed as a percentage of overall income.  Generally, dryer income varies between forty and sixty percent of total washer income.  Income and expense percentages may vary significantly for stores offering additional services such as drycleaning and fluff and fold.

Source: Laundry Industry Overview, Coin Laundry Association, www.coinlaundry.org, An excellent and informative site.

  • Average store size is 2000 square feet, though some larger stores or 5000+ square feet are located in densely populated areas.
  • Utilities 25 % (can be higher depending on area)
  • Payroll/Labor 8% to 10%
  • Occupancy Cost 25%
  • Profit (estimated) 35%Rent-to-gross ratio should be no more than 25%. Labor costs run a minimum of 10% of monthly gross.
  • Location dependent on population demographics.
  • Coin laundries need a gross profit margin of 50 percent.

Expenses as a Percentage of Annual Sales

Cost of Goods0% Payroll/Labor Costs09% to 12% Occupancy Costs14% to 25% (40% to 55% including utilities) Profit (pretax)25% to 35%

Advantages

  • Easy to run, predictable sales and cash flow streams
  • The business is consistent. Customer habit prevails in this business, so you can count on repeat or sustained business based on the historic trend.”
  • Absentee or semi-absentee ownership. Low or no labor costs.
  • Less than full time at site, limited or no payroll

Disadvantages

  • Long hours of operation, heavy utility costs, machinery repair and maintenance”
  • Multiples are higher; you pay higher purchase price for the same net profit compared to other sectors.
  • Must be able to visit store 1 to 2 times per week. Handling and transporting money in poor neighborhoods.
  • The disadvantage is the other side of the coin from advantage. Customer habit or preference is difficult to change, so growing the business is challenging. You really have to put forth a marking effort, and you have to offer something new or unique to encourage customers to give you a try, and you have to deliver on the promise.
  • Must be available to solve problems involving the equipment
  • Security in low-income neighborhoods
  • Cash business. Risky in high-crime areas.

Industry Trend

The trend will continue to pace or follow history. The need or demand for the industry is not changing, so I would conclude a bright future.

“Large facilities will drive out smaller facilities. Successful operations will provide a wide range of services and customer assistance including pickup and delivery

The economy has definitely slowed down the progress of new laundries, but this is just more reason to look into finding an existing coin laundry that is already generating cash flow. Finance companies have tightened their requirements for investors in new coin laundries, and unless buyers have an excessive cash reserve to float the business during the ramp-up, it will be almost impossible to build a new coin laundry in 2009 and beyond.

Source: “New vs. Existing Stores: Starting a Coin Laundry in a Tough Economy” by Robert J. Renteria, WashPro USA, www.american coinop.com

  • Opportunity in areas of population growth and upgrading older, rundown stores.
  • Rising cost of utilities.
  • Laundromats adding some other services: children’s play areas, sales of ancillary items, video rentals and more.
  • More amenities are being added to supplement the wash and dry revenues
  • Changing from cash operations to debit card operations
  • Great potential for growing areas, especially in dense population areas with large numbers of renters

General Information

The term coin laundry is defined as commercial-grade, self-service laundry equipment placed into service in a retail space.  Coin laundries generally occupy the retail space on long-term leases (10-25 years) and generate steady cash flow over the life of the lease.  Coin laundries are unique small businesses in that they have no inventory or receivables. A minority of coin laundries employ attendants.

Coin laundries are one part of the self-service laundry business; the industry is actually comprised of two distinct segments. The first is coin-op laundries, and the second is represented by coin-operated machines located in apartment housing. This apartment segment of the business is referred to as the multi-housing laundry business or the coin route business. These two segments frequently overlap; in more mature markets, the self-service laundry market consists of an estimated primary customer base of 86 million people living in rental housing, as of the 2000 U.S. Census. The secondary customer base consists of the nonrental population, which uses coin laundries only occasionally.

Source: Laundry Industry Overview, Coin Laundry Association, www.coinlaundry.org, An excellent and informative site.

I have sold a number of laundromats and have owned Suds City Laundromat and Wash& Fold for over 3 years now, sudscity laundromat.com and find the same rules apply as in other businesses, mainly, location, access to market,which defines your income potential, lease, utilities, and profit. do not forget that your employees are the face of your business.

The [Coin Laundry] Lease

We have bracketed Coin Laundry because the following is taken from an article on coin laundry leases, but the information applies to almost all businesses and directly impacts— positively or negatively—the price of the business under review.

The main thing to focus on when negotiating your lease is the time factor. You’ve got to give yourself enough time on the lease to make it worth your while. If you’re going in with a new store [coin laundry], it’s highly recommend that you get 15 to 20 years as an absolute bare minimum—with 25 years being the ideal situation.

One of the things you need to negotiate is an ‘exclusive’ in that [shopping] center to do your type of business, as well as the ability to offer the ancillary services you’d like to provide.

You should protect yourself in the event that your [shopping] center becomes more than a certain percentage vacant and/or if the major tenant, such as a supermarket, should leave. In such cases, you should have the right to get out of the lease or at least be entitled to some sort of rent abatement or credit.

Source: “The Coin Laundry Lease” by Bob Nieman, The Journal, March 2003

The above are just brief excerpts from an article that is probably the best one we have ever read on the business lease. Down-to-earth, practical advice, this should be read by anyone involved in business transactions, including buyers and sellers. .

Seller Financing

  • 5 to 10 years

Financing of new stores according to a survey conducted by the Coin Laundry Association:

  • 27% local bank
  • 17% equipment manufacturer
  • 05% independent financing
  • 12% SBA
  • 41% family & friends

Expert Comments

“Larger, bigger stores 5-10,000 sq. ft. with more services and larger washers and dryers. More ‘card’ stores.”

“The ratings have remained consistent for many years, which helps to exemplify the fact that this category remains a good option for many business prospects. It remains a category which allows for owner flexibility. And in many instances it can be a business operated part time. The category facilitates a need that will not change; competition is moderate; risk is very reasonable; and profit, while not huge, is predictable and consistent.”

“Competition in this category is not a significant concern, as most of the establishments have found their population niche. Therefore the amount of risk is not significant relevant to new Laundromats opening. At the same time the amount of growth is limited by the same geographic and population element, and so while the business is consistent, the potential for growth is limited. Locations are usually in economic areas that would support this type of business, and the facilities for the most part are average. Marketability spreads quickly by word of mouth. So, if you have a clean store with working machines and good lighting, you can be assured to be in the game. The trend in the industry has been and will remain consistent. While card-operated and automated machines have made some inroads, basic coin operation still leads the pack. While not difficult to replicate, the cost of replication is significant. And therefore the calculated return on the investment is long term.”

“The coin-ops have seen more and more new ones pop open in recent years in northern California; and at the same time, ease of operation is making them a bit more lucrative for a time-pressed buyer who wants some cash flow, but does not want to be tied down to a business.”

“Simple business to run, and location is important and should be based on demographics.”

“Costly to set up a new store. Parking.”

“Everybody found a place to do their laundry last week. To get that market, you have to provide a better place to do their laundry.

“If you’ve got a lease and you can’t assign it to somebody else when you sell it, then it’s going to cost you a lot of money.”
Source: “The Coin Laundry Lease” by Bob Nieman, The Journal, March 2003

“Coin-op laundries typically are recession proof.”

“Not difficult business to start, remodel or sell. Many potential buyers are looking for this type of business.”

Questions

“#1 why are you selling. If you can find out the real reason, you have a clear shot at success !!. What is the crime rate in the immediate area. Who does the maintenance,how old are the machines. Do you know of a new laundromat being build or planned. Water, sewer, electric and gas bills for 2 years Can you work with the landlord. What other services could you provide, wash & fold, dry cleaning, vending machines, atm, shoe repair, soaps and supplies, spot cleaning service, shoe shine, tanning beds, fax & internet connection, more.”

“Area crime rate. Review utility bills. New development in trade area. New competition in trade area.”

“I would request copies of utility bills for at least 12 months. Request model numbers and age of washers and dryers, and ask for maintenance records. Especially request information on water heating systems, as this is probably the one single point of failure that can easily be the most costly repair item.”

“Who does the maintenance?”

“Are you aware of any new laundries opening up in the surrounding areas?”

“Age & condition of equipment. Is equipment mix suitable for market area? Are they taking in wash & fold or dry cleaning? Is store attended? Easy loading and parking? Environmental compliance and local government fees and restrictions? Length of increase value of business. Typically, the lease should be at least 10 years or more.”

Why are you selling? Review utility bills for previous 3 years. Any new housing developments in the area?”

Resources

American Laundry News – www.americanlaundrynews.com
Coin Laundry Association—good site – www.coinlaundry.org

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