How to read a laundromat's cash flow
Revenue tells you how busy a store is. Cash flow tells you whether it is worth owning. A laundromat can ring up $30,000 a month and keep almost none of it if rent is high and the machines are power-hungry. Building cash flow from the ground up, revenue minus each real cost, is the only way to see what you would actually earn and what the business is worth.
Key takeaways
- Cash flow, not revenue, is what you are buying.
- Rent and utilities decide most laundromats.
- Exclude the loan payment to value the store; include it to test affordability.
- Utilities that look too low for the revenue can signal overstated income.
The two lines that decide most stores
Rent and utilities are where laundromat profit is won or lost. Most other costs are small by comparison. The ranges below are typical shares of revenue for a healthy self-service store; use them to sanity-check the numbers a seller gives you.
What is a healthy profit margin?
A self-service-heavy store often keeps a meaningful share of revenue as cash flow once the owner's labor is accounted for. Thin margins almost always trace back to one of the two big lines: rent above roughly 25 percent of revenue, or heavy utilities from old, inefficient machines. If the margin is thin, find out which line is doing the damage before you judge the store.
Should you include the loan payment?
It depends on the question you are asking. To value the business, leave the loan payment out, because valuation is based on the store's earnings before financing (that figure is the SDE). To check whether you can afford a specific purchase, put the loan payment in and see what is left after debt. This calculator lets you do both by adding or removing that one line.
Red flags in the numbers
The fastest tells sit in the ratios. Utilities that are implausibly low for the revenue claimed can mean the revenue is overstated, since you cannot run more machines without using more water and power. Rent that eats a quarter or more of revenue will cap the price the store can support. And a margin that only works because the owner counts none of their own time is not a real margin.
Common mistakes to avoid
- Valuing the store on revenue instead of the cash flow it produces.
- Leaving out the owner's labor, which flatters the margin.
- Trusting a revenue figure the utility bills do not support.
- Mixing up cash flow for valuation (before debt) with cash flow after debt.