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When you're buying a laundromat it is important to be confident in how much income a laundromat is bringing in. The cash nature of laundromats can make it difficult to know with reasonable certainty what the income of a laundromat really is.
There are three primary strategies you can implement to verify a laundromat's income during due diligence.
Water Analysis
The first way to verify a laundromat's income is to use a water analysis.
Laundromats consist of various size washing machines. For each size of washing machine, you'll need to determine how many gallons of water are used per wash cycle. You need to do this for each size of the machine in the laundromat.
Once you have found out the water usage, the next piece of information you need is the average number of times per day each machine is used. With those two pieces of information and the vend price, you can find out the approximate income of the laundromat. The formula looks like this:
# gallons used by machine size #1 X average turns per day x vend price = monthly income of machine size #1
Do this for each size of the machine and add them together to get the total wash income. Multiply the total wash income by .35 (35%) to determine an approximate dryer income. This should be close to the reported income.
Coin Collection
The second way to verify income is through a series of coin collections with the seller.
A coin count starts with the buyer and seller meeting at the laundromat and collecting all of the coins in the store. This allows you to start with a clean slate.
After an agreed-upon number of days, the buyer and seller return to collect the coins together again. I always recommend collecting coins by the size of the machine.
You'll proceed with this pattern anywhere from 2-6 weeks usually, with 3-4 weeks being the most common length of coin collections. With that data, you should be able to extrapolate the income for the month and verify the seller's reported income.
As always, if there are discrepancies you'll want to get to the root of them. You may need to correct your math, renegotiate, or back out of the deal altogether.
Paper Trail
The third way to verify a laundromat's income is by obtaining a paper trail from the seller. If they use a card system this will make it easy. However, most laundromats still don't have any kind of card system.
Other documents you can request to help you verify income are the business taxes and bank deposit statements. The sellers may or may not give you access to this information but you can always ask. If they refuse to disclose those documents, it's not necessarily a deal-breaker, but it is a signal to proceed with caution and be extra diligent.
A Better Way to Verify Laundromat Income
Make verifying income and managing your business much easier using the business-in-a-box solution, Cents. The precision with which you can pinpoint a laundromat's income and ease of management directly correlates to an increase in the laundromat's value. So plan ahead and try Cents.
Download our due diligence checklist to make sure you're conducting the proper research when buying a laundromat.
