Are Laundromat Sales Multiples Making Asking Prices Too High to Buy?
By: “Laundromat 123”
Often bantered about in forums and promoted by limited knowledge influencers, sales brokers and advisors is the use of “Sales Multiples” as a method for suggesting a purchase price of a Laundromat. Recently, I’ve seen three to six times as a frequently cited multiple. Here the net income is multiplied by a number reveals a reasonable asking price for those seeking to purchase a Laundromat.
Where this range of multiples comes from is often nebulous at best. The term Sales Multiple, otherwise known as a gross income multiplier is often confused by newbies to the Laundromat business to a secondary multiple that is cited as three to six times the monthly **net. **It is important to understand that the multiple of times net and gross are often not clearly understood or defined.
The CLA is the most often cited source for determining accuracy in questions of Laundromat operations and industry insight. For years I have recommended newbies and experienced Laundromat owners to join and support the only national association of the Laundromat industry. In my searches of my collections of data I found a white paper by the CLA in Volume 1 No.3 of their Gold Book, Research Series from a few years back. Here’s their insight:
“Sales Multiple
Also known as the gross income multiplier method, the sales multiple method is regarded as one of the least accurate methods for assigning value because it fails to take into account the variance in expenses that results in differences in net income among stores of similar gross income. ln other words, in the case of two stores with the same income. one may be enjoying a 40 percent profit margin while the other is losing money.
_Using this method. the value of a store simply equals its gross income times a multiplier that generally ranges from __1 to as high as 2.5, _depending on the local market and other factors.”
What is observable in this comment is that multiples of gross income as a determination of value is a poor source of reliance. Is there any evidence that net income multiples of three to six times the yearly net a better source upon which to rely? It’s certainly questionable to believe that this valuation is anything but a poor source of valuation certainty. A more complex evaluation of lease term, equipment age, potential future income stream and other information is needed to provide a reasonable and educated estimate of value of a Laundromat business. Is there any actual evidence of a three to six times the yearly net been analyzed and promoted by any authority or study? Are there ever times when even these multiples are too low to establish a proper sales price of a Laundromat?
The current value of Laundromats is often cited as the highest ever experienced in the history of the Laundromat business. Some cite the influx of large numbers of moneyed people and companies attempting to find a safe harbor for their money in an era of upward spiraling inflation and limited real estate investment opportunities. Others cite current owner greed, while others claim these multiples are promoted by the YouTube influencers and experts that have limited to no actual experience being successful in operation of Laundromats. What do you think is driving this current “seller’s market” in Laundromat values? Do you think making a purchase solely based on multiples is a wise choice?