How to Value a Laundromat
Businesses in the laundromat industry provide coin-operated laundry and dry cleaning machines for customer use. There are about 18,000 laundromats throughout the United States. According to IBIS World, these businesses generate approximately $1 billion in revenue each year. Additionally, many laundromats have seen healthy growth in profit and profit margins. We can expect these conditions to remain steady in the coming years. As such, it may be a great time to buy, grow, or sell a laundromat. Whether you are entering or exiting the laundromat industry, it is beneficial to understand how to value a laundromat.
The best way to learn how to value a laundromat is to obtain a business valuation. During a business valuation, a valuation expert discusses the risks and opportunities of a laundromat. In addition, the expert will calculate the fair market value of a laundromat. This information is beneficial whether you are buying, growing, or selling a laundromat.
Peak Business Valuation is a professional business appraiser. At Peak, we value many laundromats across the nation. We are happy to provide you with a business valuation for a laundromat. In addition, we can answer any questions you may have on how to value a laundromat. Schedule a free consultation with Peak below!
How to Value a Laundromat
When determining the value of a laundromat, a business appraiser considers a variety of valuation methods. Typically, business appraisers use the market approach and/or the income approach to value a laundromat. Each valuation method uses a different basis of valuation. Valuation experts will determine the most applicable method as part of the valuation process. This can involve using a combination of valuation approaches.
Valuing a Laundromat Using the Market Approach
The market approach is common when valuing a laundromat. This approach is similar to how a real estate appraiser values a house. Real estate appraisers often analyze similar properties in the area to determine an accurate value of the house. When a valuation analyst values a laundromat, they assess similar businesses that recently sold on the market. If the laundromat is a private business, they will use private transaction databases to gather information.
Multiples for a Laundromat
The market approach uses valuation multiples to determine the fair market value of a laundromat. Valuation multiples are financial ratios that compare a laundromat’s value to a financial metric. These metrics generally include earnings, cash flow, or sales. To find the valuation multiples for a laundromat, valuation experts apply the proper NAICS or SIC code. Below, we discuss how to value a laundromat utilizing basic valuation multiples for laundromats.
SDE (Seller’s Discretionary Earnings) Multiple for a Laundromat
- The SDE multiple helps determine the value of a laundromat based on its seller’s discretionary earnings. This multiple is popular when determining the value of a laundromat.
EBITDA Multiple for a Laundromat
- The EBITDA multiple measures the value of a laundromat based on its earnings before interest, taxes, depreciation, and amortization. This metric indicates the return on investment (ROI) the laundromat can expect to generate.
REVENUE or SALES Multiple for a Laundromat
- The REVENUE or SALES multiple assesses the value of a laundromat based on its total sales. This multiple is less common when valuing a laundromat.
To learn more, see Valuation Multiples for a Laundromat.
Valuing a Laundromat Using the Income Approach
Another common valuation method for how to value a laundromat is the income approach. This approach considers the cash flow potential of the laundromat. In addition, the income approach considers the risks associated with buying or selling a laundromat. Below, we discuss a few common risks a business appraiser considers when valuing a laundromat.
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- Competition: The laundromat industry is very fragmented and competitive. To succeed, operators need to find ways to differentiate from other laundromats and create other revenue streams.
- Equipment and Machinery: Laundromats need a variety of laundry equipment to be successful. It is also important to ensure that your laundromat equipment is reliable and efficient. When valuing a laundromat, it may also be beneficial to obtain a machinery and equipment appraisal.
- Location: The location of a laundromat plays an important role in its success. Laundromats should be located near key markets to maximize sales revenue.
- Financial Performance: It can be difficult to increase profit margins at a laundromat. As such, operators need to have strong financial planning and budgeting skills.
Methods to Value a Laundromat Using the Income Approach
There are several variations of the income approach. The two most common approaches are the capitalization of cash flow method and the discounted cash flow method. Both methods measure the value of a laundromat by assessing its future cash flow potential. Below, we discuss how to value a laundromat using the capitalization of cash flow method and the discounted cash flow method.
Capitalization of Cash Flow Method
- The capitalization of cash flow method is often used for laundromats with a long and stable history. This method determines a reasonable amount of cash flow for one period. The cash flow is then divided by a capitalization rate which reflects an appropriate rate of return a buyer can expect. The capitalization of cash flow method also assesses the risks associated with buying, growing, or selling a laundromat.
Discounted Cash Flow Method
- The discounted cash flow method relies on 3-5 years of cash flow projections. Valuation analysts divide the future earnings using a discount rate rather than a capitalization rate. This method helps the appraiser determine the value of a laundromat based on the time value of money. Typically, the discounted cash flow method is best for laundromats that have strong financial histories. It is also ideal for businesses that have built reliable forecasts. Keep in mind, the discounted cash flow method is less common since it uses future income estimates which can be inaccurate.
Summary
There are various valuation approaches a valuation analyst may use when valuing a laundromat. To understand which valuation approach is best for your laundromat, receive a business valuation. During a business valuation, a business appraiser assesses the strengths and weaknesses of a laundromat you are buying or selling. In addition, they will determine the value of a laundromat. This information is vital if you are looking to increase the value of a laundromat.
Peak Business Valuation, business appraiser, is happy to help! Peak works with laundromats on a regular basis. As such, we can answer any questions you may have on how to value a laundromat. In addition, Peak Business Valuation can provide you with a business valuation for a laundromat. Start now by scheduling a free consultation with Peak below!
See also Valuing a Laundromat, Value Drivers for Laundromats, and Valuation Multiples for a Laundromat.
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