Before buying a laundromat, due diligence is one of the most important steps in the purchasing process. It is critical to have the right information about the business, or even everything that could be wrong with the business when the purchase is complete. Without the proper due diligence, you could be at risk for making an improper valuation. Being off just $500 per month could mean overpaying by $20,000-$30,000.
To make sure you are buying the right laundromat for you, we’ve created this guide to conducting proper laundromat due diligence, outlining everything future laundromat owners should be aware of before finalizing a purchase. We break down how to:
Value a laundromat
Assess current costs
Determine the laundromat’s trajectory
Survey the site for value-add opportunities
1. How to Value a Laundromat
When purchasing a laundromat, you’ll want to verify how much income a laundromat is making. There are three main methods to determine a laundromat’s income:
Utility Usage Method
Coin Count Method
The Utility Usage Method
Laundromats consist of different-sized washing machines. For each size, you’ll need to determine how many gallons of water each machine uses per wash cycle. This number will need to be determined for each size machine in the laundromat. It may take some time, but it can help you determine the income of the laundromat.
Next, you’ll need to find the average number of times per day each machine is used.
Once you have the vend price and these two pieces of information, you can find out the approximate income of the laundromat. Jordan Berry from Laundromat Resource advises using the formula below for each machine, then adding their totals together to get the total wash income.
After you add the totals together, you’ll multiply the total wash income by .35 or 35% to determine an approximate dryer income.
This should be close to the reported income. It may not be completely precise, but it will give you a pretty close ballpark of the income of the laundromat.
The Coin Count Method
Another way to verify income is by collecting coins with the seller. The concept of the Coin Count Method is being able to physically collect coins over a series of weeks to verify that the laundromat’s income is what the seller has claimed it to be.
The Document Method
The last way to verify a laundromat’s income is using the seller’s paper trail. You can request the business taxes and bank deposit statements as some of the documents that can help verify income. Keep in mind that 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 a deal-break, but it should be a signal to proceed with caution and be extra diligent.
2. Assess Current Costs
Knowing a laundromat’s income is only half the equation. The health of a business is not determined by how much money it brings it, but rather the performance of the laundromat. In order to determine that number, the net income, we also need to determine the expenses over time.
Expenses and costs to run the laundromat include things like maintenance, utilities, staffing, insurance, and taxes. To verify the expenses, there are four main things to do:
Request all bills, statements, and payroll information
Ask to see the lease and all amendments/addendums
Verify expenses using a pro forma
Utilize an experienced expert (another laundromat owner or consultant)
3. Determine the Laundromat’s Trajectory
Once you’ve determined the laundromat’s income and expenses, the next thing you need to determine the net operation income is by assessing the trajectory of the laundromat.
The trajectory adds an extra dimension to the analysis that can be critical to a proper valuation. You’ll need to look at the performance of the laundromat over a period of time. In order to properly calculate this number, you’ll need to look at key metrics to see which direction they are trending. Over a specific period of time, look at:
How has the income of the laundromat changed over X amount of time
How have the expenses changed over X amount of time
How has the net operator income been affected by income and expense changes
Utility Usage Trajectory
Utility bills should be in the 15-20% of the gross income range
Plot all these numbers into a spreadsheet and make sure they follow a positive trajectory. If they don’t add up, it may be time to start asking why.
4. Value Add-on Opportunities
Growth at a laundromat can mean a number of outcomes: tapping into new revenue sources, expanding into wider geographic markets, or updating customer experiences.
Looking for ways to increase income in your laundromat has a two-fold benefit for you. Your net income goes up, which results in more money in your pocket every month. You also build equity in your business, which results in your net worth increasing.
There are many different ways that you can add value to your laundromat, and they can be grouped into three categories:
Add Revenue Streams
By finding improved ways to manage employees, customers, finances, and the business as a whole, you can be beneficial for your business. Collecting and centralizing your laundromat’s performance data can help you make better-informed business decisions and set more accurate goals and expectations.
Add Revenue Streams
Laundromat owners have the potential to create a number of new revenue opportunities, one of which is new services and adopting new operating models. Whether you offer subscriptions, wash-dry-fold, or delivery services, these all not only bring in more revenue but improve the customer experience.
Outside of utilities, some expenses can be trimmed down. For example, laundromat owners are often required to pair together different systems for business management solutions for operations that each come with their own costs. These types of solutions can push owners, managers, and employees to expend time, energy, and efforts navigating these systems individually. By finding a one-size-fits-all solution, you can cut operating costs.
Laundromat Due Diligence Checklist
In your laundromat business journey, due diligence is perhaps the most important step. When you conduct the proper due diligence, you understand what you are buying and what it is worth. This sets you off on the right foot toward financial freedom through laundromat ownership.
To help you in your purchasing process, we’ve created the Cents' Complete Laundromat Due Diligence Checklist. It contains all the information you need from this guide in an abbreviated, accessible form to assist you in conducting laundromat due diligence every step of the way.