CLA Connect Open Forum

Selling a Laundromat with Guaranteed Sales

  • 1.  Selling a Laundromat with Guaranteed Sales

    Posted 12 days ago
    Edited by Larry Adamski 12 days ago
    Guys,

    I'm planning to sell my Muskegon Laundromat next year.  I am thinking about selling it with a guaranteed minimum gross sales figure thus negating most of the concern a buyer may have about the 5 times EBITDA asking price.  Like all guarantees, mine would include some appropriate fine print.

    The guarantee would ensure a minimum annual gross sales figure providing the following conditions are met:
    1.  Begins on the date of closing.
    2.  Requires all lease covenants are fully complied with at all times including the timely payment of rents.
    3.  Requires that the laundromat be operated with the same hours of operation and be fully attended.
    4.  Requires that all equipment be well maintained and fully operational.
    5.  Requires that out of service equipment be repaired within 2 days unless I grant an exception.
    6.  Requires that owner seeks my input and follows my advice if an unusual situation arises.
    7.  Expires 1 year after the date of closing.

    If, after one year, Mr. Buyer can show that the laundromat has not achieved the guaranteed minimum gross sales figure; I will buy back the laundromat for the buyer's purchase price minus depreciation.  If Mr. Buyer has failed to comply with the fine print (items 1 - 7 above), I will have the option of negotiating a buy back or not.

    So, guys, that's my bright idea for today.  My laundromat (without the real estate) is worth well over $1,000,000 so any potential buyer will need very deep pockets.  I think a guaranteed minimum gross sales figure could be a nice part of the package along with a very long term lease and plenty of seller support.  Such a guarantee would also put the competitors on notice that I continue to advise and support Mr. Buyer well after the sale.

    What do you think?  Am I missing something?  I know I'll have to pay tons of taxes after the sale but, on the other hand, a repurchase would offer me tons of tax credits for the following year.  This idea seems like a win/win for both buyer and seller to me.  I must be missing something.

    ------------------------------
    Larry Adamski
    Muskegon Laundromat
    Spring Lake MI
    ------------------------------


  • 2.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 12 days ago
    I like your thought process.  It gives buyer confidence in reported numbers.  I think you need to open up your requirements some because it becomes overly-burdensome on the buyer and thus discounts the guarantee.

    Item #2 has nothing to do with the sales guarantee but links to the leases you'll obviously have an interest in.
    #3 - This is burdensome to the buyer and may limit THEIR ability to increase sales OR, more importantly, profitability.
    #5 - Somewhat burdensome.  When wouldn't you grant an exception?
    #6 - Somewhat burdensome.  If I was a buyer, I'd usually talk to the prior owner about odd situations, like under pad water leak, etc...


    Also, will the buyer get a discount if they don't want the guarantee?
    ​​​​

    ------------------------------
    Timothy Foster
    Multi-Store Owner/ Employee
    Toledo
    ------------------------------



  • 3.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 12 days ago
    Timothy,

    Thanks for the quick reply.


    Item #2 has nothing to do with the sales guarantee but links to the leases you'll obviously have an interest in.
    Timothy Foster,  12-02-2018 09:42
    My thought here is that if Mr. Buyer is habitually late paying the rent, the guarantee should go away.  Yes, this does give Mr. Buyer extra incentive to pay the rent on time and yes, that is favorable to me as Mr. Landlord.

    #3 - This is burdensome to the buyer and may limit THEIR ability to increase sales OR, more importantly, profitability.
    Timothy Foster,  12-02-2018 09:42
    This requires that Mr. Buyer operate with the same or longer hours of operation.  Some buyer may think that cutting back the hours would save some labor expense but it is also likely to reduce gross sales too.  I cannot offer a sales guarantee if the laundromat is open shorter hours.  That is simply not an option.

    #5 - Somewhat burdensome. When wouldn't you grant an exception?
    Timothy Foster,  12-02-2018 09:42
    I would not grant an exception if the needed parts were sitting on the shelf in the extensive parts department.

    #6 - Somewhat burdensome. If I was a buyer, I'd usually talk to the prior owner about odd situations, like under pad water leak, etc...
    Timothy Foster,  12-02-2018 09:42
    My thought here was not about a water leak under the concrete.  It was more along the lines of a competitor reaction to Mr. Buyer taking over the laundromat.  This is much more serious and requires an experienced and thoughtful response that would certainly benefit from my input.

    will the buyer get a discount if they don't want the guarantee?
    Timothy Foster,  12-02-2018 09:42
    The guarantee would come with a full price offer.  A lesser offer would make all terms and conditions become negotiable.

    Again, thanks, Tim, for your input.






    ------------------------------
    Larry Adamski
    Muskegon Laundromat
    Spring Lake MI
    ------------------------------



  • 4.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 12 days ago
    Ok Larry, allow me to give my two cents. This is how "I" would look at it. First, I, like most passionate entrepreneurs, am very strong willed, opinionated, a creative. Most entrepreneurs who would find this to be a deal sweetener, would probably be more attracted to a franchise not an independent business like yours. Most entrepreneurs I know  would be scared to death of this deal. Also let me say that I agree with and run my businesses very similarly to you. In fact, I've learned a lot from you.

        Next, you obviously run a great store and a tight ship. That's fantastic for you and your customers. However I, and I think most others, would completely disregard this "deal sweetener" and have no intention of utilizing any aspect of it. In fact, I'd insist that it be removed. Frankly, with you being their new landlord, it would probably scare me off. After looking at said business, id likely view you as a control freak. I don't have any desire to lease from a control freak. From a devil's advocate perspective, the buyer must: allow you to make most relevant decisions regarding THEIR business that they just paid ONE MILLION DOLLARS FOR! Just my opinion and thoughts on this idea. Best of luck in your sale!





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    Dave Menz
    Queen City Laundry Chain
    Cincinnati, OH
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  • 5.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 12 days ago
    Dave,

    Thank you for your honest thoughts.  I had not viewed it from the standpoint of being over-bearing; however, I do see how one could read that into the guarantee.

    In my defense, I would simply point out that the guarantee only lasts for the first year the new guy owns the place and then it expires.  Any new guy buying an extremely successful laundromat should not feel a need to go in with guns firing and dozens of changes to be made.  After 12 months have passed, all that fine print disappears and Mr. Buyer can operate however he wants as I would no longer be on the hook for any mistakes he may make.

    Again, thanks for your perspective.  This is exactly why I am presenting this "guarantee" idea here before I try actually implementing it.


    ------------------------------
    Larry Adamski
    Muskegon Laundromat
    Spring Lake MI
    ------------------------------



  • 6.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 12 days ago

    Larry, my thought would be to offer the potential buyer a choice of either a 6 month or 12 month guarantee.
    With that said even if the new buyer changes nothing & most do, his personality alone  could KILL the Business, I have seen this happen many times.
    The new owner I sold my Pest Control Business to a few years ago that I financed for 1 year,
    He Lost Almost 50% of my customers that I took 15 years to build in less than 6 months.
    Luckily he paid me in full with no payment interruption's, due to the fact it was ALL his Fault & I pointed that out to him almost every month when I stopped by to pick up my monthly check.



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    Mike B
    Multi Store Owner
    Sunny Palm Harbor Florida
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  • 7.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 11 days ago
    Mike,

    You bring up a good point that the Buyer's personality alone could damage sales over time.  I hadn't thought about that possibility.  Perhaps this is why laundromats are not normally sold with a guaranteed minimum sales figure.  Thanks for sharing your experience.

    ------------------------------
    Larry Adamski
    Muskegon Laundromat
    Spring Lake MI
    ------------------------------



  • 8.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 12 days ago
    You are going to be surprised when the owners want to switch to cards and quarters. :)

    ------------------------------
    Larry Larsen
    Laundromat123.com
    Anaheim, CA
    Distributor - Insurance - Consulting
    ------------------------------



  • 9.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 12 days ago
    Larry,

    You are a very experienced and successful laundromat owner and I am just a beginner, but I can still offer an opinion from the perspective as a potential buyer.  I am in Texas, so all this is just theoretical anyhow.

    I would consider the guarantee too restrictive in the seller's favor or control.  Also, your guarantee is for "gross" sales, but your selling price is based on the EBITDA (net).  As a buyer in this situation, I still have no reassurances of what the true expenses are or would be.  I would also be concerned that I am making a very substantial investment in a very successful and well-run business.  I would be paying top dollar (5x EBITDA) without a great deal of room for me to improve the business and see growth.  A lot of buyers look for "bargains" that can be improved and made more profitable and therefore more rewarding for the risk.

    Respectfully,

    Robert

    ------------------------------
    Robert W
    Store Owner/ Employee
    The Laundry Room
    TX
    ------------------------------



  • 10.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 11 days ago
    Robert,

    My wife brought up this analogy - the guarantee is like training wheels on your son's first 2 wheel bike.  You love your now 6 year old son.  You buy him his first 2 wheel bike for his birthday.  You don't want your son to fall with that bike and hurt himself so you add training wheels.  The training wheels guarantee he won't fall over and get hurt.  After a reasonable amount of time, you remove the training wheels and your son safely rides free of any limitations.

    I view this guarantee like training wheels on a bike.  There are very few negatives for either buyer or seller.  The guarantee does not replace or eliminate any aspect of due diligence.  That is, all prior year sales reports, deposits and bills would be available for inspection by the buyer prior to closing.  The guarantee only lasts for 1 year and then it goes away along with its fine print.  Why would a buyer want to CHANGE a business that has set a sales record in 6 of the last 7 years during his first year of ownership?  That makes no sense.  Discouraging any substantive changes for one year puts the buyer in the best position to continue my track record and thus be successful.  Is this "controlling"?  Probably.  Is this in the buyer's best interest?  Absolutely.

    I'm really shocked at all the negative response to the inclusion of a guaranteed minimum sales figure along with its fine print.  Mr. Buyer can easily ignore the fine print and do whatever he pleases and the guarantee simply goes away at that time.  So is this guarantee actually restrictive?  I think not.  It merely offers a buyer some extra level of comfort with the deal.  The vast majority of laundromats are sold without any guarantee whatsoever.

    If I were a buyer and the seller offered a guaranteed minimum sales figure with fine print; I'd willingly accept it and figure out later whether I would abide by the fine print or not.  I think if nothing else, it shows the seller has confidence in the laundromat's current sales or he wouldn't be offering such a guarantee.

    Just to be clear ... this is not an offering of a basket case which may have a potential for large sales gains providing the new owner has the experience to know exactly what must be changed with what brands, sizes, layout, amenities, leasehold improvements, utility improvements, signage, etc.  This will be an offering of a true turn-key laundromat with a strong customer base.  This is not for everybody and most people will not be able to afford the price of entry.

    ------------------------------
    Larry Adamski
    Muskegon Laundromat
    Spring Lake MI
    ------------------------------



  • 11.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 11 days ago
    Larry L,

    Yes, I can easily imagine a buyer wanting to add credit card acceptance ... especially if he's 20 - 40 years old.

    ------------------------------
    Larry Adamski
    Muskegon Laundromat
    Spring Lake MI
    ------------------------------



  • 12.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 11 days ago
    First, congrats.  You're a true professional and I'm happy for you.

    I like the concept, but I don't think it's practical.  A lot of the fine print is going to be subject to interpretation.  I think it will scare more people away than be an incentive.  I would try to sell it straight up, and if you're not getting movement maybe consider adding it.  I don't like buying or selling anything with covenants or contingencies.  When you sell a business you want to be done and move on, and when you buy a business you want to run it the way you want to run it.

    My other general comment is don't assume the buyer has any smarts even if they have the money to buy it.  I've seen lots of people write big checks to buy decent businesses and summarily run them into the ground.  Maybe that's a Florida thing, but I've seen it literally dozens of times.  That's another reason to structure it was as a simple. clean transaction with no strings attached.

    Best of luck.

    ------------------------------
    Paul Kludt
    Multi Store Owner
    Lake Worth Coin Laundry
    West Palm Bch FL
    ------------------------------



  • 13.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 11 days ago
    Larry:  You need to be concerned about usurping too much authority.  However, a sale that you might look after for the first year for a fee (hire your best 1 or 2 workers and agree terms with buyer ?) to prove up the numbers might work OK.  I would not do a buy back offer, I would bargain to reduce the price by a percentage if the numbers didn't materialize.

    Definitely needs a Lawyer for the small print....there are a multitude of issues that may interrupt business that would have to be set aside and work to extend the proving period.  Lots of issues to consider, especially considering you are the LLD.

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    Les Monthei
    Potential Investor
    Redding CA
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  • 14.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 11 days ago
    I think this is a brilliant idea that needs fine tuning.  Entire books have been written on buyer's trying to figure out if seller's revenue claims are legit.  So why not guarantee it and remove buyer's worst fears?  Has this already been tried?

    Agree with others that your list of demands is too restrictive (getting machine fixed in 2 days, etc.)

    But I look at the overall offer as possibly being too generous to the buyer.  The buyer gets a free roll.  If business turns up, buyer has a great buy.  If business turns down for some unforeseen reason (competitor opens, govt. reg, business drys up, lawsuit, etc., etc., ), the buyer can dump the mat back onto the seller.  Then seller is stuck with a lower performing mat, that will command a much lower sales price.

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    R Anderson
    Store Owner/ Employee
    Camarillo CA
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  • 15.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 11 days ago
    Well, I'm going to take this discussion in another direction.

    First off, you are very likely making a big mistake "selling" the laundromat.  Have you thought through the tax implications?  Have you worked out a 1031 exchange already, or are you just feeling in a mood to pay some very serious capital gains taxes?

    I suspect what you really want to do is "cash out", which is different.  Rich people with good tax advice rarely sell anything.  Instead, they borrow against it.  In this lovely country we live in, interest is even tax-free.  It's great.  Someone with a good tax strategy increases his deductions, versus the seller that increases.

    Hire a manager, pay him a little more than market wages, give him a cut of the operating income, leverage the hell out of it and take your $800k and head to Arizona with no tax bill.

    I don't even sell my stock.  If I need the money, I borrow against it.  I sell nothing, I will borrow against it or 1031 exchange it, but sell it?  No way am I paying any more taxes than necessary.

    Also, unrelated, the number of folks with $250k to put down on a $1m laundromat are few and far between.  You may not be able to sell it at your price for mechanical, not valuation reasons.

    Did I mention that tax strategy is important?

    ------------------------------
    Luigi
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  • 16.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 8 days ago
    Luigi,

    I am not interested in exchanging a great business for an unknown entity (1031 exchange).  I'm not looking for more work - I'm looking for less.

    At some point, everybody sells their assets and that's when the government salivates over the taxes.  You know what they say about death and taxes.

    I've been paying 6 figure taxes for a while now.  Selling the laundromat will simply be another step up the tax ladder.

    Actually, I am looking for a cash offer.  I'm not a banker.  The buyer should do his borrowing at his bank and hand the full purchase price over to me.

    ------------------------------
    Larry Adamski
    Muskegon Laundromat
    Spring Lake MI
    ------------------------------



  • 17.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 10 days ago
    No guarantees. Have him do whatever due diligence he feels necessary. Make no representation other than he has done his due diligence and if satisfied. Do you really want to micro manage the business? Sell it hope he defaults you will get back the Mat and be able to re-sell it.

    ------------------------------
    Denise Rubenstein
    Store Owner/ Employee
    Laundermagic of Patchogue
    Bayport NY
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  • 18.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 10 days ago
    This plan sounds like one that a couple of lawyers would love....

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    VILLENE LANSBERRY
    Store Owner/ Employee
    BELLINGHAM WA
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  • 19.  RE: Selling a Laundromat with Guaranteed Sales

    Posted 6 days ago
    Edited by Larry Adamski 6 days ago
    Guys,

    After carefully considering all cautions and comments, I decided to not offer a guaranteed gross sales minimum.  It makes zero sense to offer such a guarantee without including language referencing most, if not all, of the fine print requirements.  Even assuming a buyer complies with all the fine print requirements, it's certainly possible that his personality could degrade the business to a point where the guarantee would kick in.  I guess that's the thing that I over-looked.  In any event, I'll offer my laundromat for sale next year at 5 times EBITDA without any guarantee of future sales.  I think that would be a fair offering for any serious, energetic prospective buyer given the quality, simplicity and track record of my laundromat.  My thanks go out to each and every one of you who offered his/her thoughtful and detailed input to this timely thread … even you, Larry L, with your joke about the buyer turning it back into a quarter laundromat.  Thanks again, guys!

    ------------------------------
    Larry Adamski
    Muskegon Laundromat
    Spring Lake MI
    ------------------------------