Reference
Laundromat glossary
The vocabulary of buying and selling a laundromat, in plain English. Every term a broker, seller, or lender might use, defined so you can read a deal with confidence. Jump to a section or search the page with Ctrl or Cmd + F.
Valuation
- Seller's discretionary earnings (SDE)
- Profit rebuilt to show what an owner-operator really earns: net profit plus the owner's salary, interest, depreciation, and one-time or personal costs added back. It is the number a laundromat's value is built on.See: Valuation calculator·How to value a laundromat
- SDE multiple
- The figure you multiply SDE by to estimate value. Laundromats commonly trade around 3x to 4.5x SDE, higher for a long lease, newer equipment, and a strong location.See: What is a good cash flow multiple?
- Revenue multiple
- Asking price divided by annual revenue. Useful only as a rough cross-check, because revenue says nothing about what is left after rent and utilities.
- Add-back
- An expense added back to profit when building SDE because it would not recur for a new owner, such as the owner's salary, a one-time repair, or personal costs run through the business. Only documented add-backs should be trusted.
- Asset (equipment) value
- The current worth of the machines: their replacement-cost-if-new times a condition percentage. It acts as a price floor and a capital-expense signal, not an amount added on top of the income-based value.
- Real estate included
- When the building is part of the asking price. It makes the SDE multiple look inflated, so separate the property's value and compare only the business price to the business's cash flow.
Cash flow & returns
- Cash flow
- Revenue minus every operating cost. For valuation, use cash flow before the loan payment; to test whether you can afford a deal, include it.See: Cash flow calculator
- Profit margin
- Cash flow as a share of revenue. Thin margins usually trace back to high rent or heavy utilities.
- Operating expenses
- Every recurring cost to run the store: rent, utilities, labor, supplies, insurance, maintenance, and the rest.
- Cash-on-cash return
- Annual cash flow after the loan payment divided by the cash you actually invested. It is your real, leveraged yield in year one.See: ROI calculator
- Cash invested
- Your total out-of-pocket at close: down payment, closing costs, a working-capital reserve, and any upfront upgrades.
- Payback period
- How many years of after-debt cash flow it takes to earn back the cash you put in. Under about five years is strong for a small business.
- Annual debt service
- The twelve monthly loan payments added up. Subtracting it from cash flow shows what is left for you.
Financing
- SBA 7(a) loan
- The most common government-backed acquisition loan for small businesses. It lets buyers put less down and amortize over about ten years.See: SBA loan calculator·SBA 7(a) loans for laundromats
- Equity injection
- The down payment the SBA requires, commonly 10 to 20 percent of the project cost. It shows the borrower has money at stake.See: SBA down payment guide
- Debt-service coverage ratio (DSCR)
- The store's cash flow divided by the annual loan payment. Lenders typically want at least 1.25x, and more cushion is better.See: SBA loan calculator
- Amortization
- Paying a loan down in level monthly installments over its term. Early payments are mostly interest; later ones mostly principal.
- Cash to close
- The down payment plus closing costs you need on the day you buy. A working-capital reserve should sit on top of this.
- Seller financing
- When the seller carries part of the price as a note you repay over time. It can bridge a financing gap and signals the seller's confidence in the store.See: Seller financing guide
- Conventional loan
- A standard bank or credit-union loan without an SBA guarantee. It usually needs strong credit and a larger down payment than an SBA loan.See: Conventional vs SBA
- Equipment financing
- A loan secured by the machines themselves, used to buy new washers and dryers. Handy for a re-tool because it preserves your cash reserves.See: Equipment financing guide
- Working-capital reserve
- Cash held back to cover payroll, rent, and surprise repairs while you learn the store. It is separate from the down payment and closing costs.
Lease & location
- Rent-to-revenue ratio
- Annual rent divided by annual revenue. Under about 20 percent is healthy; above 25 to 30 percent squeezes profit and pulls down value.See: Rent-to-revenue calculator
- Occupancy cost
- The full cost of the space as a share of revenue: base rent plus any common-area or triple-net charges the lease adds on.
- Triple net (NNN) / CAM
- Lease charges beyond base rent that pass property taxes, insurance, and common-area maintenance to the tenant. They can make the true occupancy cost higher than the quoted rent.
- Rent escalation
- The scheduled annual rent increase in the lease. A healthy ratio today can drift into the danger zone as rent steps up.
- Assignable lease
- A lease the seller can legally transfer to you, ideally with five or more years remaining including options. Because machines are plumbed in, the lease is effectively the business.See: Reviewing a laundromat lease
- Lease term
- Years remaining on the lease plus renewal options. A short term is a real risk to value because a laundromat cannot easily move its hookups.
Equipment
- Replacement cost (new)
- What it would cost to buy the store's whole machine fleet brand new today, before install. It is the basis for pricing an aging fleet.See: Equipment cost calculator
- Installed cost
- The machine price plus delivery, hookup, and price variance. New commercial equipment costs more in the ground than on the invoice.
- Useful life
- How long a machine reliably runs before replacement, roughly 15 to 20 years for commercial washers and dryers.See: How long does equipment last?
- Equipment condition (% of new)
- The machines' current worth as a percentage of buying them new. A low figure signals capital expense coming soon that you should price into your offer.
- Deferred capital expense
- A replacement bill the current owner has put off. If the fleet is old, that cost is coming to you, so subtract a realistic share from your offer.
Due diligence
- Due diligence
- The verification you do before buying: confirming the income, the lease, the equipment, and the seller's story against real documents.See: Due diligence risk score·Due diligence checklist
- Verifiable income
- Revenue you can prove from tax returns, utility bills, and collection records, not just the seller's word. Cash you cannot verify should not be valued or financed.
- Deferred maintenance
- Repairs the seller has put off, such as water heaters, plumbing, or electrical. It becomes your bill the day you take over.
- Environmental liability
- Contamination risk at the site, often from a former dry cleaner. It can be expensive and is worth a specific check before closing.See: Red flags when buying
- Transition period
- Time the seller spends training you after the sale. Its absence raises risk, especially for a first-time operator.
Put the terms to work
Run the numbers on a real deal with the free buyer calculators, or read the full guides behind each concept.