The Often-Overlooked Importance of Leases
When buying or selling a business, it is critically important that you evaluate the lease. It is a strange phenomenon that otherwise savvy business people will treat leases as a secondary concern. However, problematic terms in a lease can literally force you to pack up a business and move. This would not only be a jarring experience, but a very costly one as well.
Finding a good location is of paramount importance to both the profile and profitability of your business. You may feel that there are more important issues when buying or selling a business. But by the end of this article, you’ll see the wisdom in placing a lease near the top of your “to evaluate” list.
There are three different kinds and types of leases: a new lease, an assignment lease and the sublease. All three of these options are most definitely different from one another and can potentially impact your business in different ways.
The New Lease
A new lease, as the name indicates, is the result of a lease that has expired. That means that the buyer must work with the landlord to establish a new lease. Buying a business only to discover that you don’t have a lease and the landlord isn’t interested in keeping your business at its current location is most definitely a shock that no business owners want to encounter. Buyers should be one-hundred percent certain that they have a lease in place before they buy a business.
Assignment of Lease
The second type of lease is the assignment of lease; this form of lease is quite common. It involves the buyer of a business being granted the use of the location where the business is currently located and operating. Through the assignment of the lease, the seller is able to assign the buyer the rights associated with the lease. Of course, it is important to keep in mind that the seller is not acting as the landlord, but instead, simply has the ability to assign the lease.
The Sublease
The third option for lease is the sublease. The sublease is basically a lease within a lease, and it comes with some important distinctions that must be understood. A sublease generally requires the permission of the landlord and that permission should not be viewed as a “foregone conclusion” or “automatic.”
The bottom line is that no new business owner wants to discover that their new business doesn’t have a home. There are an array of very important issues to work out when buying a business, and it is critically important that buyers never overlook what kind of lease is involved. A savvy seller will highlight what kind of lease they have, especially if the terms are favorable. But buyers should always be proactive and ask questions about the status of the lease and make certain that lease terms are clearly defined.
Copyright: Business Brokerage Press, Inc.
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Buying/Selling a Business: The External View
There is the oft-told story about Ray Kroc, the founder of McDonalds. Before he approached the McDonald brothers at their California hamburger restaurant, he spent quite a few days sitting in his car watching the business. Only when he was convinced that the business and the concept worked, did he make an offer that the brothers could not refuse. The rest, as they say, is history.
The point, however, for both buyer and seller, is that it is important for both to sit across the proverbial street and watch the business. Buyers will get a lot of important information. For example, the buyer will learn about the customer base. How many customers does the business serve? How often? When are customers served? What is the make-up of the customer base? What are the busy days and times?
The owner, as well, can sometimes gain new insights on his or her business by taking a look at the business from the perspective of a potential seller, by taking an “across the street look.”
Both owners and potential buyers can learn about the customer service, etc., by having a family member or close friend patronize the business.
Interestingly, these methods are now being used by business owners, franchisors and others. When used by these people, they are called mystery shoppers. They are increasingly being used by franchisors to check their franchisees on customer service and other operations of the business. Potential sellers might also want to have this service performed prior to putting their business up for sale.
Copyright: Business Brokerage Press, Inc.
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The Advantage of Buying an Existing Business
Most people think of starting a business from scratch, developing an idea, building a company from the ground up. Starting from scratch, however, has its disadvantages including – developing a customer base, marketing the business, hiring employees and creating cash flow … without any history or reputation to rely on.
To avoid these challenges, buying an existing business may prove to be the better solution. Buying an existing business has its advantages – including, but not limited to:
The Business Is Established.
An existing business is a known entity. It has an established and historical track record. It has a customer or client base, established vendors, and suppliers. It has a physical location with furniture, fixtures, and equipment in place. The term “turnkey operation” may be overused, but an existing business is just that, and more. New franchises may offer a so-called turnkey business opportunity, but it ends there. Start-ups are starting from scratch with all the disadvantages stated above.
The Business Has Existing Relationships.
In addition to the existing relationships with customers or clients, vendors, and suppliers, most businesses also have experienced employees who are valuable assets to the company. A buyer may already have established relationships with banks, insurance companies, printers, advertisers, professional advisors, etc., but if not – the existing business/owner does, and they can readily be transferred to the buyer as part of the acquisition.
The Business Isn’t “A Pig in a Poke”.
Starting a new business is just that: “a pig in a poke.” No matter how much research, time, and money you invest, there’s still a big risk in starting a business from scratch. An existing business has a financial track record along with established policies and procedures. A prospective buyer can see the financial history of a business – when sales are high and low, what the true expenses of the business are, and how much money an owner can make, and more. Also, in almost all cases, a seller is more than willing to stay on to teach and work with a new owner – sometimes free of charge.
An Existing Business Comes with A Price and Terms.
As stated above, an existing business has everything in place. The business is in operation and typically has an established selling price. Opening a new business from scratch comes with a great degree of uncertainty and can become a proverbial “money pit”. When purchasing an established business, a buyer knows exactly what he or she is getting for their money. In many cases, a seller is also willing to take a reasonable down payment and then finance the balance of the purchase price.
The “Unwritten” Guarantee.
By financing the purchase price, a seller is saying that he or she is confident that the business will be able to pay its bills, support the new owner, plus make any required payments to the seller.
Copyright: Business Brokerage Press, Inc.
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How Understanding Psychology Can Benefit Your Deals
We work closely with our clients to preserve the integrity of deals so that they have the best chance of a successful closing. An often-overlooked aspect of the process is understanding and embracing human psychology. In this article, we will explore some of the most common ways that psychology comes into play.
The Element of Time
It is critical that both buyers and sellers feel well prepared at every stage of the process. It is also essential that a certain momentum is established through every stage of the deal. When too many delays happen, this can start to derail deals.
Think about the Buyer and the Seller
For both parties, the buying or selling of a business is a life-changing event. For this reason, it is important that you invest the time to think about the point of view of the other people involved. No doubt, buying and selling can be stressful, so it’s important to take other people’s thoughts and feelings into account. You are not the only one who may be experiencing a little stress.
The Issue of Non-Active Partners
In some deals, non-active partners can pose challenges to finalizing deals. They often have different motivations than the seller who is in the role of running the business. In a situation where two sellers have divergent goals, it can pose a challenge to a deal. The best thing to do is to try to understand the point of view of each seller and help them both reach their respective goals.
Identify Influencers
Influencers and recommenders can have a powerful sway over both buyers and sellers. By influencers, this could mean accountants, lawyers, relatives, etc. In order for a deal to go through successfully, often these influencers must be identified and their viewpoints must be addressed. On a practical level, there are also other people involved that can interfere with a deal, such as landlords. It’s important to make sure that these individuals feel as though they will benefit from the success of the deal as well.
There are many moving parts needed to get to the finishing line. Human psychology plays a huge role in what decisions get made. It’s vitally important to take the time to consider what others involved in the deal might be thinking or doing. Your Business Broker or M&A Advisor will benefit you by getting to know all parties involved and taking the appropriate actions to ensure things are done to the satisfaction of all parties.
Copyright: Business Brokerage Press, Inc.
Wavebreak Media Ltd/BigStock.com
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Man Who Bought Laundromat off Craigslist is Now a Millionaire
Published Originally on Business Insider
Dave Menz was working at a telephone company when he decided to invest in his first laundromat in 2010.
In an interview with Insider, he broke down how buying one laundromat off Craigslist turned into a four-location million-dollar business.
See more stories on Insider’s business page.
Dave Menz is 44 years old and has a net worth of $1.9 million thanks to his investments in Ohio laundromats.
His story starts from humble beginnings. For the first decade-or-so of his life, Menz told Insider he lived in “pretty extreme poverty” in Flint, Michigan.
When Menz was around 11, his dad got a job as a computer programmer at a hospital in Cincinnati, Ohio, and moved the family there.
“We went from being pretty poor to probably lower middle class to maybe even middle class,” he said.
Menz went on to grow up in Cincinnati, and eventually, make his fortune there.
In an interview with Insider he explained how went from working a 9 to 5 to support his family to building a laundromat empire that grossed over $1 million in sales in 2019.
“When we got into the business, when we bought that first store, our net worth was roughly $50,000. Eleven years later, it’s close to $2 million,” he said.
The first laundromat
In 1995 at the age of 19, Menz took a job at a local telephone company called Cincinnati Bell. He spent 17 years there, starting off as a 411 operator and ending as a lineman.
Menz told Insider that he realized early on in his career that he wanted to be his own boss. To turn that dream into a reality, he knew he needed to buy something. So at 29, he and his wife, Carla, started to save up for an investment, unsure of exactly what type of business they wanted to own.
“For the next four or five years,” he explained, “we lived well below our means and saved a lot of money.”
In early 2010, the stars aligned and Queen City Laundry was born.
While browsing the internet, Menz saw a listing on Craigslist for a rundown laundromat in Amelia, Ohio, a suburb just two miles away from his home at the time and around 20 miles from Cincinnati. He had roughly $30,000 saved by that point, so using a small business loan and some cash, he bought the place for $85,000.
As soon he bought it, Menz used the savings to renovate it, which included things like painting, opening the floor plan, and adding a video surveillance system.
“The three main components to really any business, but especially a laundromat, are clean, safe, and bright,” he said.
A few months later, he took out an equipment loan to buy new washers and dryers.
Seven months after the purchase, the laundromat was bringing in around $14,000 a month. After expenses, Menz was profiting roughly $1,500, which he reinvested into business.
While the income wasn’t much, Menz told Insider that it was expected, and why he kept his full-time job. Not only did he have loans to pay back, but he also had to cover expenses like utilities (water, sewer, gas, and electric) and a monthly mortgage.
Growing the business
In late 2010, Menz came across a laundromat in a Cincinnati strip mall that had been abandoned by the lessee.
He told Insider that he knew the area well, and that a functioning laundromat there would be profitable because there was no competition.
“I knew I had a mess on my hands, but it was a great location,” he said.
The landlords were so eager to get the place up and running again, they offered Menz the lease for around $1,100 a month, which he explained was on the lower end. They also gave him a few thousand dollars to fix the place up and three months of free rent once it opened.
Because there weren’t many laundromats in the area, when the doors opened in January 2011, business took off.
“Within about three weeks it was profitable,” he said, and added that it was bringing in around $3,000 a month.
Chipping away at debt and quitting corporate
For the next two years, Menz and his wife continued to improve both laundromats and pay off the loans they took out to purchase and revamp them.
By early 2014, the businesses were bringing in a $7,000 monthly profit, collectively.
Not long after, Menz came across a third location, in Anderson Township, a small village around 12 miles from Cincinnati. While negotiating a deal with the owner of the laundromat, which is the only store in the building, he was presented with the opportunity to buy the building by the property owners.
“They wanted out. They did not want to own it,” he said.
So he bought the laundromat business for $75,000 and the building for $170,000.
Once the store was revamped, which was around 8 months later, it began profiting $3,000 to $4,000 a month.
Business boomed from there.
By the fall of 2014, Menz quit his job at Cincinnati Bell because the laundromats were bringing in around $8,000 to $9,000 a month in profit. Menz used the income to replace his roughly $70,000 salary and then reinvested the rest into the business.
It’s not just about acquiring more stores
Menz’s strategy isn’t all about growing his portfolio. He told Insider that a key factor to his success is the constant improvements he makes to the laundromats he already owned.
From 2015 to 2016, he focused on adding a wash, dry, and fold service to all three locations. While it cost time and money in the beginning to implement, it ended up creating another revenue stream.
In 2016, Menz bought a fourth laundromat for about $35,000. In that store, he started a pick-up and drop-off delivery service, called Happy Nest. There are currently has three trucks on the road that serve the entire greater Cincinnati area and northern Kentucky.
Today, Menz and his wife have a net worth of $1.9 million. In 2019, the four laundromats generated over $1 million in gross sales, and the pick-up and delivery business generated just under $462,000 in gross sales.
There are a total of 40 employees across all four locations, with 17 to 20 of them working for Happy Nest.
Last year, Menz and his family upgraded their living quarters to a six-bedroom home that stretches over 6,000 square feet in a neighborhood just 15 minutes from downtown Cincinnati. The move, Menz said, was a tribute to their found success.
Eager to share his expertise and passion for the laundromat industry, Menz also offers consulting and coaching for those eager to grow in the laundromat industry.
“I’m very passionate about anything I do,” he said. “During this entire evolution I’m telling you about, I’m digging and learning every little detail of the business.”
Seven months after the purchase, the laundromat was bringing in around $14,000 a month. After expenses, Menz was profiting roughly $1,500, which he reinvested into business.
While the income wasn’t much, Menz told Insider that it was expected, and why he kept his full-time job. Not only did he have loans to pay back, but he also had to cover expenses like utilities (water, sewer, gas, and electric) and a monthly mortgage.
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