Given the current state of the economy, I’m getting blasted with calls and e-mails asking, “What’s the safest way to play your cards when entering the laundry business today?”
Given that there are no guarantees in any industry, my best advice is to look at purchasing a laundry business that’s already up and running and keep your purchase price between, say, three to four times net cash flow after all expenses and before depreciation.
If you can get the business for 2½ times net, that would be a great deal, and an even better deal would be to get owner financing. You should always propose this in your letter of intent. Banks have put a chokehold on lending, so sellers who are motivated will likely consider it the only way to make a deal — at least for now.
In this scenario, your credit is not affected, and in most cases you don’t have to secure the note with any additional collateral, which was the norm when the banks were more eager to lend. Sellers pay little to no capital gains and get a monthly cash flow from their note, so it’s a win/win scenario for everybody. You’ll still need to provide a down payment, but you have the flexibility to keep your credit lines/limits available, which is very important today.
If you want the best deal as a buyer and have the liquid cash available, a cash deal is king. A quick close and limited contingencies will get you the best possible purchase price with the nicest upside for your return, pending review of the numbers after a thorough utility analysis.
DON’T OVER-BUY REPLACEMENT EQUIPMENT
Everybody needs to eat, even the salespeople who sell equipment, but I have to tell you to play your cards safely, and when you replace equipment, you should do so in phases to avoid overextending yourself — keep that cash flow in the black.
If and when you do purchase equipment, look to get terms such as deferred payments, interest only, no prepayment penalties, no money down, etc., at least for the initial ramp-up. Also, look at refurbished equipment as an option. You can save 35-40% on the bottom-line purchase price.
KEEP IT SIMPLE
There are lots of new ideas and products out there, and a sales rep can be pretty convincing when explaining how these items are beneficial for your laundry. The key here is, once again, to play your cards safely and keep things simple.
The success of your laundry falls on your efforts and management skills, and the fundamental building blocks to success are easy: keep every machine in working order, keep your laundry super clean, stay on your attendants, and make sure you have key control.
Another obvious factor is marketing and more marketing! Please, if nothing else, get out there and network. You’re a high-priced handshake and must get out from behind the counter and make sure that everybody knows who you are and what you do.
Cash is king, so the best deals with the best possible results for your dollars are very likely cash deals. Keep your cards close to your vest, but be ready to play if given the opportunity. Remember that fortunes are made in tough economic times.