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.
Knowing how much money a laundromat makes is important. However, just as important is verifying how much a laundromat spends. The important number in a laundromat business, and in any business, is how much money you keep, or your net income. You can lose a lot of money by not accounting for or verifying the laundromat’s expenses.
The best ways to verify a laundromat’s expenses are to:
- Request bills and statements
- Request to see the lease and all amendments and addendums
- Verify expenses using a pro forma
- Utilize an experienced expert, such as another laundromat owner or consultant
Verifying Laundromat Expenses
The video below is a guide on how to buy your first laundromat and has some great information on how to verify expenses. It also has a lot of other great information to help you make sure you buy your first laundromat the right way the first time!
But let’s get into the weeds a little bit on how to verify how much money a laundromat spends each month.
1. Request Bills and Statements
Some expenses are relatively easy to verify. You just need to make sure you don’t miss them in your analysis (which we’ll get to in number 3!). For utilities and other regularly occurring bills, you can request to get a copy of the actual bill or statement. You should request the actual bills, which the seller should be able to download as PDFs and provide to you to look over. The same is true of other bills that the laundromat might have, such as phone and internet, insurance, or security bills.
I recommend you request at least 2 years’ worth of bills.
When the laundromat owner provides you with the bills, you’ll want to look through them thoroughly. You need to be looking for consistency, or, more importantly, inconsistencies in the bills. For example, you should take note if the most recent 3 months’ utility bills are 10% lower than the months before it, or than the same 3 months the previous year.
You can also look for patterns to help you determine how the laundromat performs over time. For example, you might observe that the income from October through April is about 15% higher than in May through September. In some places, this would be pretty normal. By knowing this pattern you could plan accordingly.
The utility bills, in particular, can also help you assess the performance of the business. You can use these bills to help you verify the laundromat’s income. The variability of the utility bills will be tied to the variability of the laundromat’s income.
2. Request the Lease and All Amendments and Addendums
The lease is the most important document in your business. Your rent plus any common area maintenance (CAM) or triple net costs will be one of your largest expenses. It is also a binding contract that you will be expected to adhere to. Verifying the expenses of a lease is relatively straightforward as long as you actually read through the lease and understand the terms of the lease. Your financial responsibilities will all be outlined in the lease and documents referred to in the lease (amendments and addendums).
3. Verify Expenses Using a Pro Forma
Here’s a quick story for you. Some clients of mine were buying a laundromat. We had negotiated a price with the sellers and all parties signed the purchase agreement. The laundromat went into escrow and began doing our due diligence. A week before close we (and, unfortunately, the sellers) found out about a sewer bill that was being sent to the landlord that never made it to the sellers. Unfortunately for the sellers, they had to pay a large, unexpected water bill just before the close of escrow.
That bill came out to average about $700 per month of unaccounted for expenses. This dramatic increase in expenses caused the net income to be significantly less than anticipated. We had to negotiate a much lower offer price just before the close of escrow. Our new price was close to $50,000 below our original offer price!
That was painful for the sellers and my clients and I both felt bad for the sellers (who are great people!). However, had that expense been missed, my clients would have not only been making $700 less per month than expected, they would have also immediately lost $50,000 in equity in their business!
I tell that story to illustrate the importance of accounting for all expenses. missing one could have disastrous consequences. One great way to make sure all expenses are accounted for is to use a pro forma to ensure you don’t miss any big expenses. A pro forma will have line items for common laundromat expenses. You can use that to verify that a laundromat’s expenses are accounted for.
Not every laundromat will have every expense on a pro forma, but it’s worth verifying whether the laundromat you’re interested in does or not.
You can download a free sample pro forma to use in your expense analysis when you join as a free or pro member here at Laundromat Resource! Log in and click “Member Resources” at the top menu to get access to the sample pro forma and a bunch of other free tools and resources to help you find financial freedom through laundromat ownership!
4. Utilize an Experienced Expert, Such as Another Laundromat Owner or Consultant
The more knowledgeable eyes on your deal the better. Tapping into your network of other laundromat owners to get some input on your deal is a great way to analyze the expenses of a laundromat. You can start a thread on the Laundromat Resource Forums. You’ll get some great input on your deal, questions to explore, and advice on how to proceed forward. This can be a great tool for you to get input on your deals!
Another great tool can be a consultant or coach who has laundromat business experience. This needs to be someone who is not compensated based on you buying a laundromat or equipment. Your broker or distributor can be great resources for you during the transaction, but it is valuable to have an unbiased opinion of a deal.
We obviously offer consulting services that we believe are incredibly valuable. However, there are other great consultants out there that could be a great help to you in your laundromat acquisition. We’re not the only game in town. One other potential source of consulting could be a broker who is compensated outside of the deal who acts as a consultant and not the broker.
Buy Right the First Time
I say it all the time, “If you buy your first laundromat the right way the first time, the sky is the limit for you.” A huge part of buying right is ensuring you know how much money it takes to run the business so you can have an accurate assessment of the net income you’ll keep at the end of each month. Follow the steps outlined above to ensure you do things right the first time!
Special thanks to Cents for sponsoring this post and for being dedicated to helping you run your business right after you buy it right! Here’s to financial freedom through laundromat ownership!
