How To Buy a Laundromat or Dry Cleaning Business
Once a determination has been made that sufficient knowledge and skills for operating a laundromat or dry cleaning business are possessed then there are a myriad of details that must be considered to successfully complete a purchase. For purposes of this article it will be assumed that a location and a willing seller has been selected.
The first step is to negotiate and complete a Letter of Intent (LOI) to purchase the business. Essentially the LOI formally records your desire to purchase and the present owner's desire to sell. However this is not a legally binding document and in addition to stating the proposed purchase price, listing the assets that will transfer and other salient details of the proposed sale it normally establishes a period of time (90 days) for the buyer to gather information that establishes that the purchase price is fair and reasonable. Another feature of the LOI is that it prohibits the seller from discussing any sale with other potential purchasers. A seller that is in a rush to sell and a purchaser that wants to buy the business badly will normally get just that - a bad deal. While time is of the essence in completing a transaction, it should not be so rushed as to prevent a thorough examination and understanding of all the details of the sale.
Step two is to select the contract lawyer that will be retained to examine and/or draw up the terms and conditions of sale. It is highly recommended that the purchaser is represented by a skilled lawyer. One lawyer for both parties is not in either party's best interests. While cost is a consideration in every transaction a skilled lawyer can provide advice and insight that could save a considerable sum if all terms and conditions of the proposed purchase are properly addressed prior to signing the deal.
Step three is to complete a thorough examination of the business to determine the actual value. Below are some critical areas that should be analyzed and proposes some of the questions that must have answers.
The preceding information is intended to provide a guide on how one might purchase a laundry or dry cleaning business. Please examine the content carefully and use it as a basis to address other questions that might arise to insure the completion of a transaction that will please all parties involved.
- Property - this includes any real estate that is proposed to transfer upon sale. What are the property taxes? Are they paid up? Is the property free of any liens or encumbrances? Are the boundaries known and marked? Are any vehicles involved?
- Equipment - Is all equipment that will transfer listed? What is the condition? Are there any warranties or guarantees for the equipment? Who services or repairs equipment?
- Employees - How many employees, if any, work there? What are their terms of employment? Are their records up to date?
- Records - Are records and receipts available to support any income or financial statements? Do they support the income statements and are they available for at least three years?
- Leases - Is any equipment or the property leased? When is the renewal due? What are the expected terms of renewal?
- Taxes - Are state, local and federal income tax records available and are they supported by income and financial statements? What is the cost of the local business license and how are fees levied?
- Insurance - What are annual insurance expenses and is the insurance sufficient to cover any loss?
- Institutional customers - are there any particular customers that the business is dependent upon?
- Cash flow - what is the weekly, monthly and annual cash flow?
- Debts - What loans or debts might be assumed if the sale is completed? Will the terms remain the same?
- Financing the Purchase - Did the examination reveal that there is sufficient income and cash flow to enable the purchase to be financed without borrowing funds?
- Competition - Has there been any competitor that has moved into the area?
- Goodwill - How long has the business been in existence and is it a well-known and respected business in the community? Is the business a member of the Chamber of Commerce? Have their been any complaints lodged with the Better Business Bureau?
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