The worked example
A store takes in $360,000 a year. Utilities cost $98,000, rent $60,000, attendants $42,000, repairs $18,000 and insurance, supplies and fees $14,000. You will not work the store, so a manager costs $36,000, and you set aside $15,000 a year to replace machines. Adjusted cash flow is $77,000.
At 3.5x that is $269,500. A 10-year loan at 10.5% covering 85% of the price, with 1.25x coverage required, could carry a price up to $447,565. The lower, the multiple, makes the walk-away price $269,500. Three prices against it:
| Offer | Price | Coverage | Walk-away |
|---|---|---|---|
| Asking price | $340,000 | 1.65x | Above |
| Counter | $290,000 | 1.93x | Above |
| Opening offer | $250,000 | 2.24x | Within |
The asking price is cash-flow positive and would clear the loan, so the seller will say it is a fair deal. But it is 4.42 times cash flow, and with revenue down 10% coverage falls to 1.09x, thin enough that a bad winter becomes a missed payment. A drop in revenue of about 15.2% uses up the whole cushion even at the walk-away price.
Common questions
How much should I pay for a laundromat?
Price it off adjusted cash flow, not revenue: take the yearly revenue, subtract utilities, rent, labor, repairs, insurance and supplies, a paid manager if you will not work the store, and a reserve for replacing machines. Buyers commonly pay a multiple of that number, often around 3 to 4 times, then check that the cash flow can pay the loan with room to spare. The lower of the two limits is the price to walk away at.
What is a good debt service coverage ratio for a laundromat loan?
Lenders usually want the cash flow to cover the yearly loan payments at least 1.25 times, so a 25% cushion. This calculator solves for the largest loan a cash flow can carry at the coverage you enter, then shows what happens to coverage if revenue falls 10% or 20%.
Why include a manager and a machine reserve if I will run it myself?
Because the next owner may not, and because the books you are shown rarely pay the owner for their own hours. Counting a manager keeps the price honest if you ever step back, and a reserve for washers and dryers stops an old equipment room from looking like free cash flow.
Is my data uploaded?
No. Everything is calculated in your browser, there are no accounts, and nothing is sent to a server. Use Save to download a scenario file.
Is this financial, tax or lending advice?
No. It is arithmetic on the numbers you type. Verify the seller's revenue from meter reads, card-system reports and bank deposits, and check any offer with an accountant, broker or lender before you make it.