Forums: Discussions for entrepreneurs and small business.

I`m thinking about buying a laundromat that has come up for sale in my area.  The owner is moving out of state and he is selling like 4 or 5 businesses to do it, so he must have a pretty good reason.  He agreed to carry a partial note on the business, which, I think, is a very good sign.  I`ve got a list of the normal questions (i.e., when does the lease end, how old is the equipment, etc.).  My only question is about his reported profits.  He claimed right around $10,000 on his Schedule C in `03, $15k in `04, $20k in 05, and now $30k in `06 ($53,000 gross sales).  The facility has about 30 washers and 15 dryers.  This is the only laundromat in the small town (pop of around 5000), and it is the only laundromat within a 10 mile radius (population maybe close to 25-30,000).  There are about 8 fourplexes immediately accross the street, as well as a small trailer park with about 15 trailers.  The space is rented from a grocery store that shares the premises.  I`m hoping to hear from somone who has more experience in this industry.  Does this level of sales seem reasonable for the situation?  Thanks for the help!

I do not know squat about this business.  However, I am a bit of a number cruncher. 

Here is what I ran..

Looking at 2006- Assume 53K in sales and 30K in profits (Im going to assume that is profits before taxes, amortization, depreciation, intrest, etc).  Also if you assume that the average rev per customer per visit is $10 then the following holds true:

- You would need to book 4.4K per month; 1K per week (assume 4.3 weeks per month) and $146 per day.  That equates to 15 customers per day; 105 customers per week.  In a town of 5000 people, you could assume 2000 households exist(2.5 people per household).  That would mean that 5% of the households in town would not have washers and dryers.  To me this seems reasonable given the information you site.  Given the washers and dryers in place, this too seems reasonable. 

The only reason that I have ever seen someone overstate profits is in a situation where money is being processed through a busienss that is derived from illegal operations.  Any other reason does not make sense to me.   

Keep in mind that based on this margin, the expectation is that all your annual expenses are 23K.  This includes rent, cleaning, building maintenance, water, sewer and most importantly machine maintenance.  I would clearly understand who does the maintenance on the machines and building.  If it is the current owner, then you need to factor that into your financial. 

My gut level is that there may be incremental upside to the margins that are reported.  However, I do not have any basis to question the 57% margin.  For a low maintenance business, that is a great margin.  I wish I could find a bunch of these.

Thanks for the reply, it helped a lot.  Ryan