Dry Cleaning Business For Sale

[M&T]

Phlgirl,
40 props is great, at least to me it is!I wanted to update you. I was offered a 6.5% rate on the blanket.I am really looking forward to getting this done!I am also VERY happy with that rate.
When it is complete I am looking to branch out as well. I have a contact who's family owns a franchise sub-shop, well a few of them. We spoke a while back about his family selling.It may be time to make a move.
Glad to see you sharing info on the business structure. That info is very helpfull to us.
A+++ on this thread...

 

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[phlgirl]

Hey Andviv,

If you have a minute, could we ask your assistance in merging the last 2 posts above to start a new thread, titled, 'Blanket Mortgage'?

It's a commercial loan program but the discussion is related to residential properties.... I'll leave the location up to you.

Thanks!

 

[andviv]

done.
http://www.thefastlanetomillions.com/showthread.php?t=10343

 

[randallg99]

phlgirl-
where are you getting your leads from?
Thanks,
R

 

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[phlgirl]

We have basically spent the last 2 years, since moving here, getting to know everyone we possibly can in this RE market. We are lucky to have made wonderful friends with guys who own a very similar business, at least triple the size of our own. They are Jersey boys. We are all the same age and live within 2 miles of each other. Other friends have a company, which does nothing but short sales - they are masters at it. We know many of the hard money guys, bankers & and a great couple who own one of the oldest title co.'s in town.

We are essentially immersed in it 24-7. We all work together and we socialize together as well.

Over time, we have been placed on the short lists of the REO agents in town. Three agents get more than 80% of all REO listings here. We pestered them a bit and made them aware that we would always give them both sides of the deal (even though we have an in-house realtor). We make A LOT of offers. CASH. Close in 7 days. We have bought a few at auction, a few via our own short sales or wholesalers. Some were abandoned and we tracked the owners down (skip-trace). For a long time we had a block ad in the Sunday paper (We Buy Houses) and we also used to have a lot of signs around town. We used a mailing campaign, which targeted owners who are in some stage of pre-foreclosure.

Recently, there are more deals than we know what to do with. No advertising.

I am extremely lucky to have both of my partners. They are on the streets of JAX all day, every day (a little less lately). My husband has a habit of talking to everyone he sees. He loves to ask questions and people love to answer him.

Hope this answers your question.

*** 12+/- hours later, just realized you might mean business leads....haha If so, let me know.

 

[phlgirl]

You are the best, Andviv!!

Thank you!!!

 

[fanocks2003]

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?

The most obvious place to start is calling in your CPA and your business lawyer (or someone who is an expert in the legal stuff related to the particular business you are looking at).

The second step is to let these two experts do a due diligence of the business for you and give you a report on their findings. Then it is up to you to decide if this is something you want to pursue or not.

Of course, the very first thing to look at when buying a business is the sales price. Is the sales price something you would consider paying? To high, to low and why is it to high or to low?

You mentioned Cashflow above: Do you mean cashflow after fixed expenses and before taxes? If so, then the price above would be more than acceptable to me. The reason is as mentioned below.

The seller wants: $900k
Cashflow after fixed expenses and before taxes is: $290k

Say you can get a 60%LTV business loan and you can get a fixed cap rate at 10% then you would be able to get $1,74 million in loans. Out of this you then give $900k to the seller and pocket non-taxable $840k yourself.

That is what I would have done. Of course you need to pay some money out of your own pocket (bank charges as you may be familiar with). But except from that you would soon get that money back again, with interest.

 

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[andviv]

The seller wants: $900k
Cashflow after fixed expenses and before taxes is: $290k

Say you can get a 60%LTV business loan and you can get a fixed cap rate at 10% then you would be able to get $1,74 million in loans. Out of this you then give $900k to the seller and pocket non-taxable $840k yourself.

Fanocks, you lost me here. Would you mind explaining this a little more in detail?

Here is what I understand:

Casfhlow $290K
Get a 60% LTV on that, that means $174K
So far I understand what you are saying.
Then, I get lost.
You are telling me it is possible to get a loan for 10 times that amount? I had never heard about banks lending this way. What banks do that? what type of loans are those?
Or I am missing something else? (and yes, it may be very probable as I have no real clue about business loans other than the SBA loan I tried to get once a couple of years back).


By the way, I really like your posts about businesses. Thanks for sharing.

 

[fanocks2003]

Fanocks, you lost me here. Would you mind explaining this a little more in detail?

Here is what I understand:

Casfhlow $290K
Get a 60% LTV on that, that means $174K
So far I understand what you are saying.
Then, I get lost.
You are telling me it is possible to get a loan for 10 times that amount? I had never heard about banks lending this way. What banks do that? what type of loans are those?
Or I am missing something else? (and yes, it may be very probable as I have no real clue about business loans other than the SBA loan I tried to get once a couple of years back).


By the way, I really like your posts about businesses. Thanks for sharing.

Well, what 10% means is basicly that it takes the bank 10 years to have their initial investment back (this doesn't include expenses they might have. They usually charge the borrower those costs anyhow so they practicly have no or very, very low expenses out of their own pocket. Correct me if I am wrong on this). You can show this relation by taking 100% (the investment) / 10% (cap rate) = 10 (years).

If the bank give you a fixed cap rate of 5% you get 100% / 5% = 20 (years).

When the bank tells you they will give you a 60% LTV (Loan-To-Value) loan at 10% fixed cap rate. What they really mean is that they are willing to lend you money on 60% of proved earnings divided by 10%. A cost that is up to the company you acquire or the income property you are acquiring, to pay off. If this loan is an annuity loan you will only pay interest on the borrowed amount (no amortization that is).

I don't know if I explained things in an easier format. Maybe I confused people even more..hehe. If that is the case I will be more than happy to simplify the message. I see the knowledge of borrowing money in business as something essential to speed things up ("fastlane" style). Even though you don't need to of course.

 

[andviv]

I think the reason this confuses me is that, when I approached a bank asking for what loans they had to buy a business, they asked "how much is the business price", I said something like "500K" so they offered me a loan for something around 250K (I don't remember the numbers exactly, this was a few years back, but it was around 50% of the purchase price). And yes, I am completely clueless about buying/selling businesses, so maybe this is something very normal and I didn't know about it.

 

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[phlgirl]

You mentioned Cashflow above: Do you mean cashflow after fixed expenses and before taxes? If so, then the price above would be more than acceptable to me. The reason is as mentioned below.

The seller wants: $900k
Cashflow after fixed expenses and before taxes is: $290k

Say you can get a 60%LTV business loan and you can get a fixed cap rate at 10% then you would be able to get $1,74 million in loans. Out of this you then give $900k to the seller and pocket non-taxable $840k yourself.

By cashflow, I mean EBITDA (earnings before interest, tax, depreciation and amortization).

Are you suggesting that you would be able to get business loans, when purchasing a business, in amounts equal to nearly 200% of the purchase price? You definitely lost me here.

 

[fanocks2003]

I think the reason this confuses me is that, when I approached a bank asking for what loans they had to buy a business, they asked "how much is the business price", I said something like "500K" so they offered me a loan for something around 250K (I don't remember the numbers exactly, this was a few years back, but it was around 50% of the purchase price). And yes, I am completely clueless about buying/selling businesses, so maybe this is something very normal and I didn't know about it.

What was the annual earnings on the business you mentioned (the one that had 500k price tag)? The bank usually look at annual earnings, a percentage on that divided by the cap rate. That is how much they are willing to lend you on the business. It is the same with commercial real estate. Banks will take advantage of you if you can't argue for your cause. That is how they act. They are in business to make money with as low risk as possible.

I encourage everyone to do their on research on this subject so that you don't think I am fooling around with you. Because I am not.