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Dry Cleaning Business For Sale

Discussion in 'Business Models, Niches, Industries' started by phlgirl, Feb 20, 2008.

  1. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    A dry cleaning business with 4 locations – one plant (where the machinery is located but also for drop off/pick up) and 3 other drop off only locations. One site has an on-site tailor. All locations are within one mile of each other. Two are in strip malls, which are anchored by major grocery stores.

    Asking price - 900k
    Cash Flow - 290k

    The stores are fairly new (the plant just over a year old and the drop offs are less). The existing owner built this operation up from scratch and (apparently) his business model is that he picks a location, builds a small monopoly and then packages the whole thing for sale, while he moves on to do the same in another location. He is currently working on his next location, which we have visited as well.

    We have been to all 4 sites several times. We have dropped off product and spoken, casually, to the staff we encountered. They do a lot of things right but there is definitely room for improvement.

    Currently, the plant location does not run 24 hours (more like 14) so there is room to handle additional volume (should you choose to add more drop offs). The area is high growth and caters to an income bracket which would use dry cleaning services.

    Real estate is not included. Long term leases are in place.

    We have asked for detailed financials (what we have received so far is very high level) and were told that in order to move forward, they would need to have an offer (obviously with lots of contingencies). Makes no sense to me but many brokers are trying to tell us that this is ‘how it works’.

    We are not fixated on buying this business; however, think it is a solid place to start practicing the analysis process. Figured I would enlist you all to help me to come up with pros/cons, questions, suggestions. :)

    Any thoughts?
     
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  2. kurtyordy
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    kurtyordy Bronze Contributor

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    Just a word of advice. Apparently drycleaning places are known for having environmental issues and the EPA tracks the heck out of it. Just keep that in mind.
     
  3. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    Thanks, Kurt. Good point.

    You are right. Environmental concerns are huge with dry cleaners. I did ask and the equipment is all new and of the highest 'Green' standard (for now). Of course, I will have to verify that this is true and, over time, I would think that the equipment would need to be upgraded to comply.

    **I also think that if we were to enter this type of business, I would strive to make it as green friendly as possible.

    I have read that having bins inside/outside locaitons, for collecting recycled plastic/hangers is becoming popular. I, for one, HATE wasting all the plastic wrap/hangers every time I pick up my drycleaning.

    I really think would be great if someone would manufacture a sturdy, cost effective, biodegradable hanger!!
     
    Last edited: Feb 20, 2008
  4. Merkin Man
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    Merkin Man Contributor

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    There is a guy over at the RD forums under the name HCBailey (I think) who owns or co-owns with his a father a dry cleaning business.

    He has made several posts over the past few years about the business. I would check out those posts, and possibly send him a message if you desired. He's a long-winded writer, but his posts are generally pretty good.

    Hope that helps!!! :smxB:
     
  5. jganz
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    jganz New Contributor

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    i believe he actually owns a carpet cleaning business..

    i just remember the long posts about his truck and trying to increase his business..

    good luck
     
  6. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    LOL....yes, it appears that it is a carpet cleaning biz.

    Thanks for the tip though, Merkin.

    I am browsing through his posts now..... quite a character. ;)
     
  7. biophase
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    biophase Legendary Contributor I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    The do make green hangers, they are called eco-hangers. I have a friend who owns a dry cleaners. He tells me the big box cleaners that charge $1 for pants and $0.50 for shirts make it very difficult for local ones to compete.
     
  8. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    I can only repeat what kurtyordy said. I too was helping my brother on his research for a business to buy and he was looking at a couple of dry cleaners. He desisted on that business as he found out that there will only be more pressure by EPA and 'green groups' about the chemicals used. I have no experience in the business anyway, just wanted to report what we found a year ago. He is now looking at a gym and a laundromat.
     
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  9. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    Thanks for the feedback, Biophase.

    I should have stressed the 'cost effective' part of my statement. Do you happen to know how they compare to wire hangers in price? (I have an inquiry into the company now)

    Are you saying that your friend finds it difficult to compete in general or to compete while using eco-hangers?

    I, for one, take my dry cleaning pretty seriously. If I pay a good bit of money for a garment, I would not take a chance of trusting it to a rock bottom pricing shop, where the buttons will likely be melted off. :) My gut feel is that this would vary by location. If you were in a more affluent area, this would be less of an issue but in a borderline income area, the price would likely be a significant factor.

    I guess the real question is, how does the rest of the dry cleaning population feel about it? Not sure. Point well taken.
     
  10. MJ DeMarco
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    MJ DeMarco Raving Lunatic Staff Member Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    Admin Post
    The dry cleaning business is very cut throat and price competitive. These types of businesses are hard to scale due to competition ... there are cleaners on every corner. Therefore I think 3X+ earnings is far too much to pay. Interestingly, the owner seems to engaged in a fastlane plan -- build assets and sell, repeat.

    I think that is the side you want to be on. Its pretty easy to uncover that Fastlane plans being orchestrated ... just follow the money all the way to the top of the chain.
     
  11. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    Thanks, MJ.

    I agree.... I really thought the model this guy came up with was clever. He is a civil engineer by trade, so he uses those skills to target where the growth/income will be headed.

    I also agree that the business is overpriced - considerably. Would be an interesting negotiation, should we choose to move forward. This guy knows he has tapped into a great market and he is trying to get a buyer to pay for the Future. One thing I have learned is that, in business, you Pay for the past and Buy for the future. (Keith J Cunningham)

    As far as fastlane, I am hoping that our plan is fastlane too. :) The plan is to buy an existing business, which is running well, but not at optimum performance. Improve the business, thus increasing the bottom line and the value of the asset as a whole. The concept is actually very similar to the value play in Commerical RE.

    Management is in place for this biz and we will keep the managment so that we can focus on improvements. For example, we have thought of adding the following:
    • Additional Commercial accounts - owner has been so focued on building that he has not taken the time to address. There are several office buildings nearby.
    • Pickup/Delivery service - there is nothing like this in the area and a portion of the client base could certainly afford. I use a similar service myself.
    • Subcontract a shoe service and provide drop off at each location for shoe repair/polish, etc.
    • Additional income producers at each site - the leased spaces are huge and they are essentially empty except for the counter. We would add impulse buy items - gum, mints, drinks, greeting cards, lint rollers, etc. Things for people to pick up while they wait for clothes (similar to a car wash)
    This guy has done a great job of building a small monopoly - as you said, these things are often on every corner. Two of the four sites are directly across the street (large 4 lane road) from one another. He has positioned himself well and, for now, there is no immediate competition. Of course, this will change, over time.

    There is new construction EVERYWHERE you look in this area. People are moving into this location at a very rapid pace.

    Our plan is to take advantage of the growth AND increase the NOI by generating additional income streams. After a few years of solid growth, sell the operation.

    Does this make sense?
     
  12. kurtyordy
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    kurtyordy Bronze Contributor

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    to crank this up a notch fastlane wise, once you get in and learn the biz. start doing exactly what he is doing. Use the existing to build up in a new area and sell to a buyer and move one.

    Once a person proves a fastlane exists in a sector, there is usually room for a few more people to fastlane it before it becomes saturated.
     
  13. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    If I were a civil engineer, I would certainly think about it! lol

    I think our primary focus will always be real estate; however, at this stage of the game, my husband and I have decided that we need an additional, consistant, stream of income and we are looking to meet this need via a business acquisition.
     
  14. MrPink
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    MrPink Contributor

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    I keep looking at other areas for cash flow, but keep reading the 'fast lane people' say stick to one thing and do it very well. I haven't heard anyone chime in and say stay focused and won't be the first. I feel that money is money.

    I guess the question that I ask myself is when are you spreading your time across too many projects?

    Mr. Pink
     
  15. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    valid point, and also remember that Phlgirl is already very successful in her area of expertise (SFH rentals in Jacksonville). Once you get to a point where you actually have assets then (and only then, in my opinion) you should start thinking about diversification. As long as she is not buying herself a job and this becomes really passive then it makes a lot of sense.

    To answer your question, my opinion is that you are too spread when you start letting the ball drop in one of the projects because you are busy working in the others.
     
  16. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    Thanks for the feedback, MrPink.

    Good question. I ponder the focus issue often.

    We are currently very heavily involved in a real estate venture, which brought us to FL (from PHL). We have been buying up discounted homes, renting them out, with the intention of holding for a term of 5-7 years. The issue we are encountering now is that we are getting very close to maxing out the number of properties each partner can hold in their individual name (10).

    We have been trying to obtain financing in the business name (blanket mortgage, which would take all propeties out of our name). I do feel that we will be successful eventually - but with the credit crunch and considering the 'youth' of our existing company, it has been extremely difficult so far.

    The way our business model works, we make money when we purchase a property. If we are no longer able to purchase multiple homes each month, a significant portion of our income will cease to exist.

    Without additional serviceability, we will soon hit a brick wall, as far as RE is concerned.

    As I said, I believe we will find the right banking solution in time. We have a few leads even now but until I see something in writing, I cannot count on that as a solution. In the meantime, I feel like we must find another solution for an additional income stream.

    We also don't hate the idea of owning another type of business. My husband and I will always be RE people but we wouldn't mind having a second business to eat up all those real estate losses and provide more tax free income. :) We love a new challenge and will need something to keep us busy when we get back to PHL.

    Update on Dry Cleaning biz - we made an offer, with many contingencies for due dilligence, but it was too late! An offer had been accepted the previous day.
     
  17. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    Thanks, Andviv. Great point - I think the above is the key.

    We are not looking to purchase something that requires our daily interaction IN the business. We want something which has existing management in place and therefore allows us to focus on growing/improving the business at a higher level. Managing your people will always be part of that equation, but with proper 2nd tier management in place, it should not require daily interaction.
     
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  18. MrPink
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    MrPink Contributor

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    Thanks for the excite feedback. (I feel like I am getting on a tangent to the original post)

    ++speed phlgirl and andviv

    phlgirl, you were looking at holding properties 5-7 years? By reading your numerous posts, I know that you are taking into account transaction costs, but why pay them at all - and not just keep the property?

    The focus is on generating passive income. The method is whatever floats your boat.

    Mr. Pink
     
  19. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    I want to be sure that I understand your question before I try to answer. Are you asking why we don't just hold a portion of these properties without a mortgage - which would then provide additional passive income?
     
  20. MrPink
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    MrPink Contributor

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    Yes. Why not hold cash flow properties forever? My guess is that you have better opportunites else where..

    You don't have a mortgage on some of them? wow. Selling may cost 5k (some money, but 5k is just a total guess depending on many factors) for a real estate agent, closing etc..

    Does that help?

    Mr. Pink
     
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  21. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    I think I understand now, MrPink.

    5-7 years is just the amount of time we think we will need to fully realize the growth/market turnaround for our Jacksonville market. The plan is to then carry forward gains and consolidate into fewer & larger projects, which will be closer to our home base. Who knows, if property management operations are functioning well and the market still looks strong, we may very well choose to keep many/all of the properties for an even longer term.

    I agree with your point though - typically, I am an advocate of 'no need to sell'.

    Thanks for the discussion. Let's see if we can get you out of parking.... +++
     
  22. M&T
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    M&T New Contributor

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    Phlgrl,
    I was just wondering why a local bank in your area would not do a nice blanket for cash flowing properties?
     
  23. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    Hey M&T -

    Oh man, it is driving me crazy!!

    I have met with 10-12 banks now and had phone conversations with probably 3 times that amount. When I meet with the bankers, it has been VPs, Presidents and just recently my first owner.

    I present our business model, financial statements, rent roll, personal and business tax returns. Almost everyone I have met with seems to really like the model but the issues, I am told, are as follows:

    • Age in the company (we just hit 2 years in our FL LLC this month)
    • Lack of proper income - although our properties cash flow, it is not enough to carry the weight of 3 full time partner salaries (which is what we have). We make up the difference by cashing out equity from each property. This is a loan and NOT income.
    • Lack of seasoning in the properties
    • Credit crisis
    I have learned so much. I should have structured my companies differently. I have been investing in RE since 1999 and had an LLC since 2003 - unfortunately, I was not holding any of the property in the first LLC's name nor was not applying for credit/loans in the company name.

    Our portfolio is very reasonable LTV wise and the 2 year mark seems to be the magic number. I had my third meeting with one smaller local bank last week - finally got to the owner (3rd meeting). They wrote a few days later to say they will be presenting an offer.... which is a first.... but who knows. With the mayhem in the markets right now, nothing would shock me. This is why we are actively working on our contingency plan. Cross your fingers for me. :)

    Not to derail (although it hardly matters, as the business has sold) but how is the RE market in Hershey treating you?
     
  24. M&T
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    M&T New Contributor

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    Hello,
    Man it is ready to GO up here. Great properties are up for sale. I am chomping at the bit to buy. But I promised myself I would get to a certain point with the one's we have first then move on. Sort of a goal, and I did not hit it yet!!! It seems I can raise rents and still get people in and they are happy to be there.
    We are finilizing a blanket right now at a local bank. It was going to be for 7% but the 3/4 % drop is going to bring that down! Thank God for that...I have been working on this on and off for 2 years. I will be glad when it is over.A Corona and a steak will be waiting for me when it is done!
    One thing my attorney told me was this. " Banks need you more than you need them".When you talk to them make sure you carry that attitude.I'm sure you know that already.If you are eager you know what happens.I jumped on some deals that were not so good. Thinking I was not going to be in them long.Boy that turned out bad. So if their offer is not good keep shopping or negotiate!
    Anyway, how many properties are you talking about if I may ask?
     
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  25. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    Congrats on the loan!! That is great news. +++ for the persistance!

    Yes, I have been hearing good things about Hershey, from friends of ours who invest/live in Philadelphia.

    We have just over 40 properties, which we are trying to wrap up in a blanket. The banks do finally seem to be coming around but, as I have said before, I will beleive it when I see it in writing!
     

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