[This is the third in a series of early blog posts documenting the purchase process of our first laundry back in 2014. Enjoy.]
If you’ve been following along lately, we’re in the process of buying a business. For this round, we’re gonna have a little “Q and A” fun. I’ve been sent a lot of questions recently and I’ve got a lot of answers. So let’s dig in.
How Did Your Meeting With the Seller Go?
We expected it to go well, and it went even better than that. Turns out it’s a husband and wife team, and they invited us to their lovely home to go over details about the business; Coin Laundry Basics, Store Management, Repairs, Income/Expense Review, Bank Statement Review, etc, etc.
We sat down at their kitchen table, and among stacks of financial records, still managed to have some great conversation and even a bit of laughter. (Who knew that owning a laundromat could provide such an array of interesting and humorous stories…and did you know that a rogue bra wire is one of the most common causes of commercial washing machine breakdown? Me either.)
What Was the Most Important Thing You Wanted to Know?
Well, there were a lot of important things we wanted to know, but one of the first things we asked was why are they selling the business in the first place?
If a business is doing well and bringing in a good net profit, why would anyone sell it? (No, really. Why?)
There’s always a reason, and you need that information to make an informed purchase decision. You want to be sure they’re not selling because they’ve become aware of something that will cause business to drop…such as a new competitor down the street, a dramatic rent increase, etc.
I won’t divulge the seller’s reason for selling because we’re still in escrow, but their reason was very logical, and I did my own cyber-sleuthing to verify and fact-check what they stated. It all checked out.
What Are Some of the Things You Looked For During Your Financial Review?
A whole heck of a lot, I’ll tell you that.
We looked at tax returns, utility bills, profit and loss statements, and bank deposits. We identified any odd spikes in expenses or dips in revenues, and investigated them. It all checked out.
This is fascinating stuff, I know. Please hold back your enthusiasm.
So, Why Are You Buying this Business, Anyway?
We’ve been looking to increase our retirement savings for quite a while now, in an effort to be financially independent in the next few years. A semi-passive business around the corner from our home that leverages our skillsets while giving us a very nice return on our money seemed like the perfect thing.
But we’re not sure what our exit strategy is quite yet. If the semi-passive laundromat business model turns out to be one we really like, we may pursue a second or even a third store down the road. The cash flow from just this one store would move up our early retirement timeline by a couple years. But more than one store would really put our nest egg into overdrive.
And when that day of financial independence nears, we have a few options…either quit our day jobs and spend a couple hours a week running the laundromat(s) for a very nice annual income, or sell off the business for a tidy sum, add it to our nest egg and retire completely.
What Kind of Paperwork Did You Have to Provide?
We handed over bank/investment statements, tax returns, pay stubs, personal resumes, and a business plan. This was so that the property manager can approve us for a lease, and the lender can approve us for a small business loan. We’ve spent many hours this last week pulling all of the information, and filling out all sorts of detailed, mind-numbing paperwork. By the time we were done, the stack was several inches thick!
The business plan was particularly tedious; it’s a document that outlines the details on how we plan to fund the purchase, our plans for improvement, how we intend to manage and operate the business, a forecast of revenues/profits for the next 5 years, a break-even analysis, blah, blah, blah.
A business plan is a common requirement for business loans and even some commercial leases. In our case, the loan is small enough that a Business Plan wasn’t technically required.
But truthfully, creating it turned out to be a mutually beneficial task; not only does it demonstrate our business acumen to a prospective lender or property manager, but it was also a great way for us to visualize our financial goals for the business and walk through how we plan to meet them each year.
Last night our broker came to the house to review our 3-inch stack of paper, and organize it into a final package to the lender and to the property manager.
Besides a few little extra boxes to check, and a couple of pay stubs we missed, it was all there. The broker said it was one of the most complete business acquisition packages, and the best business plan he’d seen in a very long time. Well, that’s a good sign.
Soon enough we were saying our goodbyes, and he left. But as he walked out our front door and down our driveway with our paperwork under his arm, I got a stomach cramp. The cramp remained there the rest of the evening and well into this afternoon. We are taking the next step and that fact both excites and frightens us. This is new territory for us.
What if something doesn’t work out? What if the lender doesn’t think we have enough business experience? What if our net worth isn’t high enough? What if we missed something in our financial review? What if…what if…what if.
But for now, we just sit.