This is a sponsored post by Cents. Find out what Cents can do for your laundry business here. All reviews and opinions expressed in this post are based on my personal view.
The value of a laundromat is based on the amount of money that a laundromat brings in, so when you’re buying a laundromat it is important to be confident in how much income a laundromat is bringing in. However, laundromats are still primarily a cash business, relying on coins as the primary source of payment. This 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. Using a combination of a water analysis, coin counts, and an examination of paper trails will allow you to verify a laundromat’s income with reasonable certainty.
Water Analysis
The first way to verify a laundromat’s income is to use a water analysis. This technique is not precise but will give you a decent ballpark of how much money a laundromat is making. Let’s talk about the basic concept behind the water analysis and then I will direct you to a free tool to make it easy for you.
When you enter due diligence with a laundromat, you will need to request the utility bills from the seller, preferably for the past 2 years at least. All of the utility bills will give you useful information about how much the laundromat is being used, and therefore how much money it is making each month.
Of particular interest, of course, is the water bill. The water bill is going to tell you how much water has been used each month. This will be important information to have to run your analysis.
Ok, here’s the concept. 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. The best way to do that is to check the manual if it’s available. If it’s not, the next best thing is to find the model number and serial number of each size of machine.
With the model number and serial number you’ll need to look up the water usage. The best first attempt of that is to search brand name of machine + model number + water usage. If you can’t find the information online, then your next best bet is to call the machine manufacturer with the model and serial number and ask them for the water usage numbers.
You need to do this for each size of machine in the laundromat. It’s a little bit labor intensive but can help you determine the income of the laundromat.
Once you have found out the water usage, the next piece of information you need is 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 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.
One final note on this analysis is that you can compare the sums of the gallons used by each machine size multiplied by the average turns per day to compare the water usage number with the actual numbers reported on the bills to make sure everything lines up. If there are major discrepancies, you’ll need to explore further.
Now, I promised a free tool to make it easier for you! We have a free spreadsheet that you can download when you’re logged into your free membership account. It’s located in the Member Resources tab in the main menu when you’re logged in along with a host of other great resources! Take advantage of those!
Coin Collection
The second way to verify income is through a series of coin collections with the seller. I’ll explain the concept behind this and then I’ll tell you where you can download a free tool to keep track of everything (in case you can’t guess where to find it).
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. You’ll also need to take a reading off of the water meter and write that number down. This will help you keep track of how much water is going through the store between collections.
After an agreed-upon number of days the buyer and seller return to collect the coins and take a water meter reading together again. I always recommend collecting coins by the size of machine. For example, collect and count all of the 20 lb. machines together. Collect the 40 lb. machines together. Etc. And don’t forget to take another water meter reading.
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 out the income for the month and verify the seller’s reported income. You’ll also want to extrapolate out the water usage from the meter and make sure it’s in the ballpark for past months according to utility bills.
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 all together.
The risks here are that the seller is adding quarters behind the scenes and running water in the back room to make it look like the laundromat is performing better than it is. The best way to deter that or catch it is to require access to the security camera system during due diligence. If there isn’t one, consider installing a temporary one during due diligence.
And again, we have a free Coin Collection Worksheet for you to download when you login to your free member account. It has space for you to record collections by size of machines and also a space to record water meter readings. It’s a handy way of keeping yourself organized.
Paper Trail
The third way to verify a laundromat’s income is through 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.
Another common scenario is that a seller agrees to disclose taxes and/or bank deposit statements but let’s you know with a nod and a wink that those numbers might be low. This is implying they are skimming money off the top. Again, this isn’t a deal breaker, but, as I always tell my coaching clients, if a seller is willing to lie to the government about how much money their laundromat is making, they’re willing to lie to you, too.
A Better Way
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 the ease of management directly correlates to an increase in the laundromat’s value. So plan ahead and try Cents.
