The Laundromat Spring Bounce
The Laundromat business is a very cyclical one, meaning that there are times when we can always count on heavy months (the winter time) and other times when the collections are a bit lighter than we would prefer (the summer). In an established coin laundry, the gross revenue in the summer months is generally somewhere between 10 and 15% less than that of the winter months. Why, you ask? In most places in the US, the winter time has colder weather and it rains more. This means that customers wear thicker clothing and more of it. This is all good for filling up the washers and dryers. So here we are in the spring time and getting ready for the summer, which is quickly approaching.
Something interesting happens each year right around this time. There is what I like to call "The Spring Bounce". It is usually only one month and it changes every year. Sometimes it is April, sometimes it is May, but whenever it happens, we see that the business picks up and we have a great month. There are a couple of reasons for this sudden increase in business, both of which makes complete sense.
Firstly, when the weather breaks and the seasons change, away go all of the winter clothes and out come all the summer clothes. Many customers will wash all of the winter clothes before storing them for the summer. You will see them bringing in their comforters and blankets to clean them as well. Hurray! Secondly, customers pull out of storage all of their summer clothes which have been stored all winter. In addition, graduations are here so there are plenty of graduation gifts like new summer outfits. All of this needs to be washed to be ready to wear. Hurray again! And bingo, we have a great month! So, why is this a problem for potential investors who want to own a laundromat? The reason is because if the investor is not careful they can easily over pay for a store. You see, many who seek to purchase a coin laundry do so in the spring time. I don't know why, maybe it is because they just got a big tax refund and want to invest it. Maybe it is because more Laundromats go on sale in the springtime than any other time of the year.
But whatever the reason is, as an investor, you need to make sure that you don't just look at the numbers for the last six months of the business. I always recommend to my clients, that you analyze the income of a store based upon the last 2 years of operations and to make sure that it includes the numbers for two summers if at all possible. Last spring I knew a guy who wanted to buy a Laundromat based upon the numbers from only the prior six-month period ending in May '06. So in other words, the seller only provided him 6 months of earnings and they were for the best six months of the year, rather than the average earning of the entire year. Now this store made a lot of money and the difference between the winter months and the summer months was well over $3,000. This translated to a net income difference about $1,500 a month and he would have overpaid for the store by over $75,000. Luckily, he came to me before it was too late to do anything about it and I advised him to either get a better price or pass on the deal. When the seller wouldn't come down on the price, he passed! So beware of "The Spring Bounce" if you are shopping right now for a store. In the world of Pooh, if you are not careful you might get pounced! And if you were wondering, yes this also happens in the Fall, right around Pumpkin time.
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