Coin Laundry Business Fraud | When Sellers Inflate Income

Any person with some experience in this industry can tell revenues and expected income of an operating coin laundry business by analyzing its utility bill. However, because of the fact that most people coming into the coin laundry business are inexperienced, many fall for scams and outright fraud. Coin Laundry Businesses are evaluated based on a multiple of net profit. This multiple will vary depending on the age of the equipment, conditions of the lease, and general store factors. But generally the range is from 4 to 6 annualized next profit. For example, if a store generates $35,000 in annual net profit and the machines are newer and has a good lease, the general going price would be 5 or 6 X $35,000, which equals $175,000-210,000.

Unscrupulous sellers will inflate income as much as possible to get the a higher price. And during the period of collections, these sellers will "salt the mine" or in other words add coins to the boxes when no one is watching to make income match claimed income. This practice is well known in the industry and any experienced broker will spot it. However, sometimes brokers are aligned with the seller and will look the other way when fraud is taking place. Therefore, as a buyer ALWAYS hire a third party broker or expert in the business to avoid over paying for a Coin Laundry Business.

As a rule of thumb, buyers should always do the following during while performing due diligence on a Laundromat;

- Demand four weeks of revenue verification
- Demand 2 years of water, electricity, and gas bills
- Insist on bringing your own coin boxes to be placed at the Coin Laundry during the revenue verification period
- Check water meter usage and figure out how much does 1 HCF generate in revenue at the store. Extrapolate it to verify against claimed gross revenues.
- Hire an expert or a broker with no connection to the seller. Brokers who represent the seller receive commissions from the seller so they have a bias to help the seller NOT the buyer.
- Hire a lawyer to go over the lease

By taking the steps mentioned above, you will avoid becoming a victim of a costly fraud.

Laundromat Appraisal

There are many factors that figure in the price of a Laundromat for sale. One has to take into consideration the factors mentioned on Before You Buy a Laundromat and above all look at the revenue and income statements.

The ROI (Return On Equity) rate will vary depending on the age of the equipment, long term potential, lease terms, general store conditions. But you will usually find newer Laundromats asking for higher multiples of yearly income than older operation. Ranges of multiples can go from 4 times annual income to 6 times annual income but each case is unique and thus different factor should be considered. The best way to do an appraisal is to have a broker do it for you in addition to hiring an independent auditor who understand the industry. A broker who is selling you a Laundromat will always paint a favorable picture to the seller's interest as he wants that 10% commission. An independent auditor on the other hand gets paid a one time fee to give you an unbiased assessment of the business. If you are actively looking for a Laundromat and need Appraisal services feel free to contact me at vclinla at gmail do com so I can recommend someone local to you.

Theft Prevention

The Coin Laundry Business lends itself to various form of theft that are common to most businesses as well as unique to the Laundromat business. Some forms are the obvious ones such as thieves stealing directly from you and other forms come from employees, customers, etc. Therefore, it is important to keep a close eye on the operation at all times. Here are some of the situations that every Laundromat owner should be aware of:

Money Collections

Since most Laundromat owners like to collect revenues every few days or once a week, the potential for loss is greater is one is victim to a robbery. Always do the following in order to avoid direct robbery:

- Install security cameras: The advantage is obvious, you can have every single movement recorded and it serves as a deterrent to potential troublemakers.

- Never collect money at night, try to do so very early in the morning or when there are people present in the business.

- Collect money prior to leaving the store. Avoid collecting money and storing in the store while doing other functions such as machine repair, store maintenance, etc.

- Never talk to customers while collecting money. There are thieves whose strategy is to distract their victim prior to robbing them.

- Collect money on different days. Try not to be predictable, watch your perimeter and see if anyone is watching you.

- Never share keys with anyone. An employee or someone else might make a copy of the keys and have access to critical areas of your store and equipment. Keys should be in your possession at all times.

Theft from Machines

Sometimes robbery occurs in an passive manner such as tampering with your washers and dryers. The most common forms of theft from Machines are:

- Placing an obstacle between the coin drop and the coin box to divert coins to be collected. This happens when machines lids are open, therefore always make sure your lids are closed and your employees do not have access to this area.

- Triggering washer or dryer credit with wire. Some thieves are clever enough to use wires to trigger coin credits on your machines. Sometimes it is your own employee doing it, sometimes it is someone who knows how to do this and charges a discounted price in order to give customers credit.



Card System Theft

There are many security advantages to a card system, such as avoiding the display of coins to people in the store to see. However, this system is not full proof and there have been issues with revenue loss due to these machines. The most common issues are:

- Cards issues by hackers: The card system works with a magnetic trip that indicates a certain amount of credit in them. Hackers have figured out how to add credit to cards and sell them on the internet. Thus there are people who will come wash for free using these cracked laundry cards.

- Security codes: Each machine has security codes which in turn can be used by people to make cards to sell them on your Laundromat. Some will purposely jam your card vending machine so they in turn can sell theirs. Always protect your codes and never give them to anyone.

Day to Day Operations of a Laundromat Business

Running a Laundromat can be a relatively easy experience because it is for the most part a mechanically automated business. But just like any other business, a Laundromat owner has to make sure the business runs well and customers are happy. The following are some key factors to consider when operating a Laundromat.

- Hours of Operation: Usually Laundromats are open from 6am until 10pm, some prefer to run longer hours or even 24 hours. Schedule should be set according to the needs of the community and the cost of keeping it open vs potential revenues.

- Employees: A Laundromat is a place where people from the community come to wash their laundry and they expect Laundromats to be a clean place. Employees can be hired full time or part time to make sure the store is clean at all times and make supplies such as hand soap, hand towels, restroom supplies, etc. are readily available to customers. Smaller Laundromats are able to operate with part time employees while larger operations should consider hiring full time staff. The key to offer customer a pleasant experience when visiting your store.

- Machine Maintenance: Laundromat owners usually have a technician on call to repair their machines or in a monthly contract where repairmen commit a certain time of the month to come repair or maintain any equipment that needs service.

- Money Collections: Depending on the size of the operation, an owner needs to collect proceeds every week at the very least. If it's a coin operated Laundry, owners make sure machine's coin boxes are emptied and bill changers fully stacked with coins. There are some stores that use a card system that can save owners a lot of time collecting coins, the downside however is higher maintenance cost, installation cost, and the fact people usually prefer to use coins.

- Vending Machines: Some machines are serviced by contractors who pay revenue share with Laundromat owners while other machines are owned by the Laundromat. For those that need inventory, an operator should set aside time to buy and stock vending machines every week.

No Laundromat operation is the same. An owner can spend as little as couple of hours a week at the store to dozens of hours depending on the store. But overall, time required to run a Laundromat is on the flexible side and that is one of factors that make this business so attractive.

Sources: Laundromat123.com

Commercial Laundry Equipment Brands

The following companies specialize in Laundromat equipment. Check their sites and their local distributor to see if they are a good fit for your operation.


- Continental - http://www.continentalgirbau.com
- Milnor - http://www.milnor.com
- Dexter - http://www.dexter.com
- General Electric - http://www.geappliances.com/commercial_laundry
- Maytag - http://www.maytagcommerciallaundry.com
- Speed Queen - http://www.speedqueen.com
- Ipso - http://www.ipso.be
- American Dryer - http://www.amdry.com
- Huebsch - http://www.huebsch.com

What to Look for in Potential New Sites

- Long term lease: You want to have as long of an lease option as possible. You want to make sure your investment have a good return for a long time to come. And if you decide to sell, the lease will play a significant part in the buyer's mind.
- Good parking: Must have good parking area so customers can bring their clothes in and out with ease.
- Visibility: High visibility by cars or pedestrians is the best. Therefore you should choose locations that are clearly visible and where big signs can be put up.
- Must have 6" sewer line, 2" water line. Gas meters nearby, Six hundred amps of 3 phase power.
- Make sure the new location meets the criteria for population density, demographics, and competition.

Sources: Laundromat123.com

Building a New Laundromat

The obvious question to many people thinking about entering the Coin Laundry Industry is whether it is better to build a new Laundromat vs Buying a used Laundromat. There are advantages to both approaches but the risk is much higher when building a new one from scratch, especially if you are not experienced in this industry. Other options include renovated Laundromats which I highly advise people NOT to buy. Many brokers buy old Laundromats, renovate them, and then try to resell them at a much higher price by using "projected" increased revenue because of these renovations. But this is really no more than a scam. That's why I always advice new entrants to do their due diligence on the industry, it is sad to see people lose substantial amounts of money based on a Laundromat broker's greed.

With this said, the benefits of building a new Laundromat are many as well. Larry Larsen of Laundromat123 believes one can have a selection of the layout of the store, brand new equipment with warranties, higher income potential, better lease terms. If this is the option you would like to explore, you should contact at least 3 different Laundromat companies and have them do the following for you:

- Laundromat layout
- Market and competition review
- Education on how to run a on Laundromat
- Site analysis
- Demographic reports review
- Necessary Lease concession for Laundromats
- Financing by equipment vendors
- Contractor and Building Architech recommendations
- Construction oversight of project
- General Advice on building and running a new Laundromat

Always MAKE SURE you check brokers with the Better Business Bureau, ask for references, search online for comments on prospective brokers.