When they say LOCATION, LOCATION & LOCATION, they are definitely including vended laundries at the top of the list.
Many other businesses such as Car Washes, Gas Stations and many others where the investment into the property itself is near or even over half of the value of the business, require longer leases.
They are critical.
The Vended Laundry Is An Investment Business
Most investors in the laundry business know that at some point they may wish to sell their business. There are windows when this can be optimal. In this regards, let us understand why this long lease period is so important. When a developer first develops a laundry the initial lease term is most commonly a 25 or 30-year span, broken into original lease with options. This is good. The initial owner can operate the business using the full life expectancy of the original equipment and still have time to retool the laundry for a second generation. This owner has every incentive to keep improving and maintaining the laundry; expecting growth and a healthy return on the investment that he makes both in increased income and profits upon the sale of the business. The landlord and the property manager are happy. So are the other tenants, for the extra customers you are bringing to their businesses with time on their hands.
On the other hand, a laundry owner with only 15 years or less of lease time (It is assumed that a longer lease extension was attempted and rejected) would be advised to manage any reinvestment very closely. In order to make a reinvestment into a laundry without a longer term requires analysis. Remember, reinvestment in a laundry I often in the 6 figure range. It is common to have 15 years or more for a resale of a laundry. If you are the Seller you will be able to get a reasonable selling multiplier for your laundry with only 15 years, depending on the other elements; equipment condition, operating model and potential for continuing business with some measurable growth.
Now, if you are the Buyer, you will need to concern yourself with how much of what reinvestment you will need to make during the course of the remaining lease. You will want to maximize income but you also need to look at the length of time you will have to return the investment. As this lease gets eaten up the laundry value will also be limited to the ROI, in the remaining time allowed. At a point it is essential that the lease be extended. If not those final years of the lease, once the equipment is in bad shape, can be bad for all. It is clearly in the interest of the Landlord that the lease be sufficient in length in order to minimize the effects of this.
Making An Argument For The Landlord
Many landlords are reluctant to issue long lease periods. The reasons are many. Among them are, who knows what things will be in 20 or 30 years? We don’t see a reason for such a long lease. We get a higher rate with other businesses. We don’t know you. We are not sure we will want a laundry in the center that far down the road. These concerns must be addressed and demonstrated. The fact is, is that if you cannot have adequate time to re-invest into your business and get a reasonable return on the investment, you probably won’t. You will need to make measured improvements and unless a new lease can be negotiated the laundry will begin a process of deterioration causing problems in many ways; affecting the other Tenants, the landlord and Property Manager. It can also make it very difficult for anyone to sell the laundry.
Contributor:
I am an experienced entrepreneur, attorney, & business professor. I & my EvergreenGold® team offer business owners sound advice & expertise to build business value & achieve profitable sales. Call me today for a business evaluation & SWOT analysis for your business anywhere in the USA.
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Laundry consulting, due diligence, buyer representation: We preview laundries for you and evaluate them. 28 years laundry industry experience: buying, selling, valuing, retooling, analyzing, consulting services for laundry buyers and entrepreneurs in California. Contact us today about our services.
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The Veld Group provides a refreshing approach to Business Brokerage, Mergers & Acquisitions and Business Consulting and Valuations. From Your Street to Wall Street, we cater to Main Street Businesses as well as more complex Strategic Firms and Start-Ups.
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McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.
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For over 25 years Peter Siegel, MBA has been providing niche business purchase financial advisory and loan placement services with SBA Loans, Non SBA Financing, Retirement Plan Conversions, Note Restructures, etc. Call me regarding business purchase financing and to get pre-qualified: 925-785-3118.
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I am the Founder Of BizBen.com. I consult daily with intermediaries, business buyers, owner/sellers & advisors daily about buying and selling California small to mid-sized businesses. Contact me today about joining & utilizing BizBen, consultations, & advisory services.
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