Advisor

<body topmargin=0 leftmargin=0 marginheight=0 marginwidth=0> <table cellpadding=0 cellspacing=0 border=0><tr> <td valign="top" height=105 BGCOLOR="#66CCCC" TEXT="#080000" bgproperties="fixed" background="12e00690ezvthe.gif"> <div> <FONT SIZE="3" COLOR="#000099" FACE="Times New Roman" ><B>Coin Laundry OWNERS CLUB</B><B> </B></FONT><B>  |  </B><B> </B><A HREF="index.htm" TARGET="_top" TITLE="Coin Laundry OWNERS CLUB"><U><B>Home</B></U></A></div> <div> <A HREF="id18.htm" TARGET="_top" TITLE="Potentail Investors"><U><B>Back</B></U></A><B>   </B><A HREF="id28.htm" TARGET="_top" TITLE="Operating Statements"><U><B>Operating Statements</B></U></A><B>   |   </B><A HREF="id19.htm" TARGET="_top" TITLE="Industry"><U><B>Industry</B></U></A><B>   |   </B><B>Advisor</B><B>   |   </B><A HREF="id27.htm" TARGET="_top" TITLE="ProForma"><U><B>Pro-Forma</B></U></A><B>   |   </B><A HREF="id29.htm" TARGET="_top" TITLE="Income"><U><B>Income</B></U></A></div> <div> </div> </td> </tr><tr> <td valign="top" height=375 BGCOLOR="#66CCCC" TEXT="#080000"> <div> Advisor</div> <div> Of all the various store-front business enterprises, a laundromat sale will generate the greatest buyer interest. If you are considering investing in a laundromat, here are a few important points. As the information contained herein is based upon his own experience, the author reasonably believes it to be reliable. However, you use the information at your own risk. The author assumes no liability.</div> <div> <B>LEASE:</B></div> <div> <B>If you lose your lease, it is very expensive to set-up in a new location: machine pad construction (far more expensive if there is a basement); sufficient gas supply for dryers; </B><I><B>lawful </B></I><B>waste-water egress; plumbing (including sufficient water supply); three-phase and single-phase electrical layouts; dryer venting system; flooring, ceiling, and counter space. </B></div> <div> <B>In the event you wish to sell the store, the purchaser will want an appropriate lease. Accordingly, you need a very long and easily assignable lease.</B></div> <div> <B>It is best to own the real estate.</B></div> <div> <B>WASHING MACHINE FUNDAMENTALS:</B></div> <div> <B>The water saving potential of a front-loading washing machine is best demonstrated by the following: Consider a cup full of water and you have an example of a top-loader (vertical axis washing-machine). Consider a cup that is one-half full, visualize it on its side with a lid on it and you have an example of a front-loader (horizontal axis washing-machine).</B></div> <div> <B>Because all of the cylinder weight (including the water and the laundry) is supported solely by bearings at the rear of the cylinder, front-loaders are three or four times more expensive to manufacture (and therefore to purchase) than top-loaders.</B></div> <div> <B>Front-loaders offer two advantages over top-loaders: They use less water (including hot-water) and they offer washing action that is superior to the "agitation" of top-loaders. In a properly loaded front-loader items fall from the top of the cylinder and thud to the bottom. The greater the cylinder diameter the harder the fall and the better the washing action.</B></div> <div> <B>A disadvantage of front-loaders is that they spin less water from the clothes. This, as it is easier to spin a load on the vertical axis than on the horizontal. The average top-loader will get up to 600 RPM on spin-out. As front-loaders develop ten to twenty percent less spin-out speed than top-loaders, they leave more water in the clothes.</B></div> <div> <B>DRYING FUNDAMENTALS:</B></div> <div> <B>Drying is the less profitable side of the operation. Depending on variables such as the types of washing machines, as discussed above, and/or the presence of extractors, as discussed below, revenue from dryers will normally total about 30% to 40% of coin revenue. Due to the cost of gas, the net profit is generally less than on the wash side.</B></div> <div> <B>Stay away from dryers that re-circulate warm air. They save fuel, but dry slowly and will be a source of dissatisfaction to your customers.</B></div> <div> <B>EXTRACTORS:</B></div> <div> <B>An extractor is a centrifuge that can spin laundry at great speeds. Some models can attain speeds of over 1500 RPM. If heavy items such as towels or dungarees are squeezed in an extractor before being placed into a dryer, drying time can be cut by one- half. As reduced drying time translates to a need for fewer dryers, extractors are a common sight in places such as New York City, where real estate is very expensive. Here follow some points on extractors:</B></div> <div> <B>They must be loaded properly (otherwise, items spin out of the cylinder). Accordingly, their introduction requires a commitment to doing customer orientation and training in their use.</B></div> <div> <B>They are inherently dangerous (a heavy steel cylinder spinning at tremendous speeds). Although recent models incorporate several safety features (mostly directed at insuring that the lid properly closes and remains closed during operation), extractors have, at least in the past, been a source of serious injury and considerable litigation.</B></div> <div> <B>There are two basic types of extractor: direct-drive and indirect-drive. Indirect drive units have a transmission and braking system; they are considerably more maintenance intensive than direct-drive models, which have a three-phase electric motor directly driving (and braking by reversing polarity) the cylinder.</B></div> <div> <B>GENERAL POINTS FOR THE CAUTIOUS BUYER:</B></div> <div> <B>Gross revenue is key to price in a laundromat sale; therefore, in terms of gross, you must be very careful to get what you are paying for. Ask the right questions.</B></div> <div> <B>Find out exactly what portion of gross sales come from coin and what portion comes from service. Is the attendant inserting coins into machines in order to do service work? If so, you must make an adjustment in order to arrive at the correct gross. For example: If, on average, a $12.00 sale of service work takes $4.00 in coin to launder, the net sale for service is $8.00; therefore, if service work is $900 per week and total coin receipts are $3000, the gross is correctly calculated by subtracting $300 from $3900 = $3600 (i.e.; by the above example, 1/3 of drop-off sales is actually coin sales, so take 1/3 off of total drop-off sales to avoid counting it twice). Is all of the service drop-off or is some of it being picked-up somewhere? Are there any institutional customers? If so, who are they and how secure are the accounts?</B></div> <div> <B>Do your homework. Do not rely on "trial" periods. Devise your own rough estimate of gross sales before entering contractual agreements and/or commencing a "trial" period (which is customary in a laundromat sale):</B></div> <div> <B>Count each washing machine in the store and note the price per wash (i.e.; 3 Wascomat W-184 at $3.50 per wash; 6 Wascomat W-124 at $2.25 per wash; 14 Wascomat W-74 at $1.50 per wash)</B></div> <div> <B>Find the rough average price per wash (i.e.; take 3 x$ 3.50 + 6 x $2.25 + 14 x $1.50 = $45.00. Divide by the total number of washers (23). The result ($1.96) is the rough average price per wash.</B></div> <div> <B>Find out approximately how much water per wash each type of machine in the store uses (ask to see the machine manual, or call the distributor).</B></div> <div> <B>Using the same formula as above, substitute gallons of water used per wash for the various prices and use the same formula to calculate the rough average water usage per wash. (i.e.; 3 x 100 gallons + 6 x 60 gallons + 14 x 40 gallons =1220. Divide 1220 by 23= 53).</B></div> <div> <B>Calculate the estimated revenue per gallon of water used (i.e.; 196 cents divided by 53 gallons= rough average of 3.698 cents per gallon). </B></div> <div> <B>Review the water bills and calculate the number of gallons per month the operation uses (one cubic foot of water = 7.48 gallons).</B></div> <div> <B>Multiply the monthly water usage in gallons by the revenue per gallon. Unless service is being done in non-coin machines, the resulting rough estimate of washing machine sales should be about two-thirds of total coin sales per month.</B></div> <div> <B>Multiply the washing machine revenue by 150% to get the estimated total coin sales per month.</B></div> <div> <B>Divide the estimated total coin sales per month by </B><I><B>4.3</B></I><B> to get a rough estimate of total coin sales per week.</B></div> <div> <B>A few words of caution:</B></div> <div> <B>Water bill analysis will give you only a </B><I><B>maximum</B></I><B> figure</B><I><B> </B></I><B>as to what the store is grossing; therefore, it should be used only as a screening device. Contact the author for more accurate techniques.</B></div> <div> <B>I refer to "rough" average because the use pattern of laundry machines is not necessarily consistent with the store layout. If, upon your visits to the store you identify equipment that is rarely (or very frequently) used, it is recommended that you adjust your calculations accordingly. In fact, all of the above calculations should be adjusted to tailor them to the operation you are analyzing. For example: my calculation assumes a ratio of washer revenue to dryer revenue of 2:1. It may actually be 3:2 or 11:5. Ask questions and figure things out. A diligent analysis should leave you well informed about the operation.</B></div> <div> <B>Be alert for water leaks. Choose a time when there is no washing machine activity and ascertain that water is not leaking </B><I><B>through</B></I><B> the machines (most machines sit idle with the dump-valve open; therefore, any water leaking into the machine [due to a defective water-valve] passes undetected through the machine and into the waste-line).</B></div> <div> <B>Look at recent water bills and compare them to old water bills. Compare them against the corresponding utility and fuel oil bills (i.e.; there should be a fairly constant relationship between the consumption of water, fuel oil, natural gas, and electricity, as measured in gallons, cubic feet, kilowatt hours, etc. (don't compare the dollar amounts on the bills, as prices fluctuate over time). </B></div> <div> <B>Be alert to seasonal weather changes when evaluating a laundromat. Both the first week of warm weather in the Spring and the first week of cold weather in the Fall can excite a 10% to 20% increase in business.</B></div> <div> <B>Why is the seller selling? Is it because another laundromat is about to open in the area? If that is the case, the gross revenue that you are purchasing now is more than it will be after the new store opens.</B></div> <div> <B>Whenever you consider a laundromat purchase, open the door on each front-loader and each dryer, reach in and try to rattle the cylinder. If you can rattle it, it needs bearings- an expensive and difficult repair- especially for washing machines, due to the water-tight seals.</B></div> <div> <B>MY MOST IMPORTANT ADVICE:</B></div> <div> <B>Be it a laundromat purchase, or the purchase of some other business, if owner financing is part of your deal, avoid personally guaranteeing notes. It not only renders you personally liable, it operates to reduce the sellers financial incentive to see you do well and to give you whatever help you may need.</B></div> <div> <I><B>The above is presented as a public service by the author, Gary W. Ruff. Mr. Ruff is a practicing attorney experienced in business and real estate transactions. He has particular expertise in the laundromat business. His services as a consultant and legal representative are available in the metropolitan New York and Long Island areas. For those who are elsewhere, more information is available.</B></I></div> <div> <I><B>Contact: </B></I><B>THE LAW OFFICE OF GARY RUFF</B></div> <div> 635 Broadway</div> <div> <B>Massapequa, N.Y. 11758</B></div> <div> <B>Tel: (516) 541-6073 * Fax: (516) 759-1424</B></div> <div> <B><U>mailto:gruff@optonline.net</U></B><FONT SIZE="3" COLOR="#000000" FACE="Times New Roman" ><B> **</B></FONT></div> <div> <B>** Please note: If you are located in New York State and have an immediate need for legal services, please telephone. In all other cases, please email me with your mailing address.</B></div> <div> <I><B>Copyright 2000-2001 by Gary W. Ruff</B></I></div> <DIV ALIGN="LEFT"></DIV> <div> <I><B>Redistribution notice: may be reproduced and redistributed in any print or electronic form provided full credit is given to the author, including business name, business address, email address, and telephone number exactly as that information appears herein.</B></I></div> <bR> <div> <A HREF="id30.htm" TARGET="_top" TITLE="Terms"><U><B>Site Terms and Conditions</B></U></A></div> <bR> </td> </tr></table></body>