Maybe it's time to retire, or maybe you own several laundromats and you want to narrow your focus — there are a lot of reasons for making the decision to sell as a laundromat owner. But, how much should you ask for? Between assets, income, and utility costs (to name a few), how do you figure out the right price for your business? Luckily, we're not the first people to perform a laundromat valuation. Figuring out ballpark figures is pretty simple if you're willing to put in the time to calculate them.
To start with, keep in mind that your asking price should be 3.5-5 times the net operating income of your business. You can determine that multiple by considering the age of the equipment, the length of the lease, and the terms of the lease.
How to value a laundromat business
When performing a laundromat valuation, there are various factors to consider.
Laundromats, like any business or commercial real estate, are valued based on performance. The way we measure performance is through a number called the Net Operating Income (NOI). NOI is the gross income minus expenses (excluding taxes and loan payments). The other 3 main factors to consider are the ages of the equipment, the length of the lease on the space, and the terms of the lease.
Let's talk about how each of the three main factors affects your asking price.
1. Age of the laundry equipment
Let's start with the laundry machines themselves.
These numbers are not precise as there are a lot of details to consider but in a neutral market, equipment that is 0-5 years old should fetch a 4.5-5 times multiple. Equipment that is 13-16ish years old is going to be valued at 3.5-4 times NOI.
Equipment older than that is nearing the end of its life and will need to be replaced soon.
2. Length of the lease
Lease length is critical in your laundromat valuation. Longer leases make laundromats more valuable. This is because a long lease gives stability to a business that is difficult and expensive to relocate if a lease is not renewed or if the rent is increased dramatically. Therefore, when preparing to sell your laundromat, if you don't have much time left on your lease, you may want to consider negotiating a new, long-term lease or adding options to the end of your lease. This extra time will give buyers more confidence and increase the business value of your laundromat.
Here's how the length of your lease can affect the value of your laundromat. Again, longer leases are better, so leases that are 15+ years tend toward 4.5-5 times the NOI. Leases around 10 years, as a guideline, are valued at around 3.5-4 times NOI.
3. Terms of the lease
We generally determine the multiple based on the percentage of rent amount, including common area maintenance or triple net costs, versus the total gross income of the laundromat.
Here are some general guidelines to help you get a feel for how the rent amount influences the multiple.
Obviously, paying less rent is better, so lower leases will command a higher multiple. Typically, rents that are around 25% of the gross income of the laundromat or less fetch a multiple of around 4.5-5 times NOI. When that percentage creeps up to around 33% or higher, the multiple decreases to around 3.5-4 times NOI.
Conduct your due diligence before purchasing
When purchasing a laundromat, it's crucial to conduct the proper due diligence. Without it, you could risk an improper valuation that can cost you thousands of dollars. To ensure that you buy the right laundromat for your business goals and needs, we’ve outlined everything future laundromat owners need to be aware of in this easily digestible checklist
Raising your laundromat valuation
If you've done the math and you're realizing that your laundromat isn't worth as much as you'd like it to be, take a look at our resources page for advice on improving your laundromat. Ideally, you shouldn't sell your laundromat until you're happy with the sale price. Cents can help you improve your laundromat's value in the short term as a business and in the long term if you decide to sell it one day.
Book a free demo to see how Cents can assist you at every stage of your laundromat journey.
Jordan's 2 Cents
If you plan on selling your laundromat, either on your own or through an agent, make sure you list it for free over at LaundromatMarketplace.com. Thousands of visitors a month browse the Marketplace looking for their next laundromat investment, so be sure to list yours there. And, as always, it's free to list it!
Jordan Berry is the mind behind LaundromatResource.com, which aims to help clients learn about and break into the laundry industry. Jordan Berry’s 2 Cents is a spin cycle on our proverbial customer education machine that we like to run whenever we can. Keep an eye out for more of his featured input in the future!