The Right Pig? – Buying a Small Business

I am going to detail the steps I have taken towards buying a small business. What I lack in experience running a business, I have tried to make up for in measured – thorough approach.

If you have already read my tentative first steps in this direction, Fortune Favors the Bold, and its follow up, Let Fly the Dice, I have decided to keep with the hunting theme 🙂

I don’t actually hunt, I’m just the guy that wishes he did hunt. A trick I did pick up about hunting is to notice movement by looking at nothing. A general gaze that focuses on nothing in particular will be drawn to any movement.

This tactic is also great for noticing ‘off sides‘ during football season.

Anyway, I had no specific type of small business in mind while I cruised the back water hinterland of the internet taking in the sites and trying to learn more about FIRE. I built up a general knowledge of the pros and cons of different business models.

 I wanted a cash flow with minimum effort. As safe a bet as you can get while still risking capital to get ahead. The wife was watching. I had to avoid even a whiff of failure or my budding entrepreneurial spirit would be strangled in its crib with mocking laughter and merciless shade.

Mostly I was stalking rental properties. I had some confidence with VRBO and our second home and figured I could comfortably expand to rentals. But I kept coming up against nice expensive units or dumps, not a lot of middle ground left in my geographical area.

Then out of the corner of my eye I notice it. Through the leaves, an animal familiar to me and yet strange all at the same time. Two remodeled rental units, in the same town as my vacation house that I already have cleaning/handyman staff for.

But it is attached to a freaking Laundromat???

This is not enough to scare me off, I am new and improved OthalaFehu who has been vicariously running a laundromat ever since I ‘met’ Laura from  ‘We Bought A Laundromat’.

I sniffed the air and moved in for a closer look.

$429,000 you say? – Oh never mind – I was just looking 🙂

Fast forward one year later.

Somebody is still on the market. Somebody is overpriced. Maybe a second look.

I was in the area so I decided to walk inside. It’s lovely, it is completely remodeled, clean, and bustling.

I chat up the lady behind the counter and casually ask if the owners are around much?

I left my name and number and get a phone call an hour later. SURE let’s meet up and see what’s what.

A husband and wife team. They rescued the derelict laundromat 7 years earlier, fixed it all up and were ready to sail off into retirement. Despite there being from OHIO, I liked them. I walked through the property, including the rehabbed rental units. Nothing is wrong, no real red flags. I wanted to meet them face to face and just see how my gut reacted. No talk of buying at this point.

Since that day I have taken the following steps;

  1. Back of the napkin, what funds do I have available?
  2. Inquire with my bank as to increasing my HELOC cap, currently $50,000
  3. Call my guy at the bank, he may not like me, I always dance around without ever buying anything.
  4. My guy has left big bank for smaller Credit Union.
  5. Chase that guy down, I like him. He gives me contact name of ‘mixed use’ commercial loan guy.
  6. My bank says sure we can redo HELOC for $100,000, just need some docs.
  7. Talk over with wife, should have been step #2, but at least cracked the top ten.
  8. Read everything about Laundromats on line, printed out whatever was free.
  9. Checked up on SEV/property tax statements.
  10. Sent in new HELOC paperwork.
  11.  Walked into my local local laundromat, inquired of owner. Left name and number.
  12. Got a call back from very friendly local laundromat owner, sure he will meet me for coffee to talk.
  13. Local Credit Union has a geographical limit to where they will let me invest, need a new bank.
  14. Called owners of target small business, what bank do they deal with? Realtor contract has now lapsed, I can express interest without triggering any commission.
  15. Contact bank up there, talk to commercial loan guy.
  16. Send commercial loan guy my personal financial info so he can attest that I am credible party. See CREDIT SCORE PIC.
  17. Print off generic NDA (non disclosure agreement) and tailor for current parties and sign it.
  18. Met for coffee with local owner, great guy, new friend, lots of good info. Feel less like I fell off turnip truck. Came prepared with list upon list of questions. I am a list guy.
  19. Sent my NDA and local bank intro letter to target owner, waiting on P&L statements(Profit&Losses) and other assorted docs.
  20. Cast the Runes and it came up favorable, but that is probably too odd to get into here 🙂

Getting both nervous and excited.

 Waiting to see the numbers roll in, maybe this is the right pig? Maybe I am finally ready to jump out of the tree and make some small business bacon?

I went ahead and signed for the HELOC increase to $100,000. It is good to have options. The silly bank thought my house was worth way more than I thought it was worth.

I will do an update for the next step which involves crunching the numbers and verifying income claims and expenses history of a small business. In the laundromat industry, income and expenses are notoriously hard to accurately peg. I’ll have to put on my junior CPA hat!

 

8 thoughts on “The Right Pig? – Buying a Small Business

  1. how many hours driving do you live from this laundrette? sounds like an interesting prospect, especially if you’re spending time at the vacation place regularly where you can look in. you ever watch “shameless” the american version. fiona buys a laundromat and it goes horribly wrong but it’s a mad-cap comedy series.

    • it is 3 hours away, but I plan on retiring up to that area. We love shameless but are not up to date on the laundromat season, she just bought it in the last season we watched. We don’t have showtime 🙁

  2. Interesting article! Looking forward to following along through the process. So the purchase price covers 2 rentals as well as the laundromat? Makes the calculus more complicated but also more intriguing!

    I don’t have the ready cash for an investment like this because I keep getting tempted into dropping my e-fund into the market, but I’ve been debating real estate for about a year now. Maybe time to get more serious about it.

  3. Nice that you already have some resources in place. I hadn’t thought of buying a business where our second home is. Something to ponder.

    And even if everything falls through you’ve made a new friend/contact in the process.

    • I keep imagining myself in a sun visor and change making belt putzing around my laundromat for an hour or two each day in retirement, feels right.

  4. Love the detailed thought process of approaching this decision. Nice to have a step by step guideline (although I agree with your sentiment that the discussion with the wife probably needed to be higher up there).

    Never thought about owning a laundrymat but I could imagine that could be a relatively hands-off venture. I basically try to get passive income streams for me that are about as passive as you can get. Even though I leave money on the table by not actively doing it myself, the time hassle factor saved makes it worthwhile for me.

    Definitely anxious to hear the conclusion of this so keep us posted

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