My SHINY Nickels

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Mr. Spock Would Say That Emotional Investing Is Not Logical

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[It’s Mr. Nickels at the keyboard today.  I may not write much, but when I do, I usually have something to say.]

The final tactic we used to get the price of the laundromat down to our purchase price of $105,000 actually started early last year.   In pursuit of that earlier investment, we developed a mindset that allowed us to negotiate from a position of power, by removing emotions from the equation.   Not only did we learn to project a ‘take-it-or-leave-it’ attitude, we actually believed it.

Because, as Spock would probably say, emotions are irrelevant.

Lets go back…..

We had a large chunk of money in investments and thought it would be smart to diversify and move some of that money into investments we had more control over.

Our first strategy was to try to get into the real estate rental market. We had a friend that was a retired real estate agent, so we reached out to her to find an agent to help us find the right property. Laura reached out to the agent and told him what we were looking for.

We wanted a distressed property in a middle class neighborhood that could give us nice returns. I also wanted the area to be decent enough that I didn’t feel like I needed to pack heat to go fix a toilet. We had a few houses that we wanted to look at, about 10 miles north of us.  A few days later we met up with the agent and went through the houses on our list.

On that first outing, all of the properties were more distressed than we were comfortable with.  Hmmm.

Where, Oh Where is Our Realtor?

A week passed and we hadn’t heard a thing from our realtor.  To say that he wasn’t helpful is an understatement.  But we had found a few more houses on our own that we wanted to look at so we called him again to set up a time to see them. On this trip out, we finally found the one we wanted to make an offer on. It was a duplex with a two bedroom-one bath in the front and a one bedroom-one bath in the rear. It was distressed, but nothing that we weren’t comfortable with.

When we went to look at the back unit, the gate to get in was locked. He couldn’t find the combination and I had to climb the rickety fence to get into the unit.  Laura refused to climb over, so we relied on my observations and pictures to evaluate it.

While looking at the property, our realtor gets a phone call and tells us he needs to leave. He tells us to lock up when we’re done. (Yeah, we thought it was strange too. And probably not legal. Whatever.) We decided to make an offer. We called up the agent, and he sent over the fact sheet with the property details.  (Remember that locked gate? Yeah, the combination was right there on the fact sheet the realtor had the whole time. No comment.)

The asking price was $97,000. We made an offer of $91,000 and crossed our fingers.

Our Realtor Sucks!

We found out that our realtor didn’t submit our offer for two days.  When he called us back, he let us know there was now an investment group from the bay area that was interested in the property too. (Of course there is.) We were asked to submit our best and final offer. The investment group made their offer sight unseen.

Unfortunately, or fortunately, we lost out on that property. We did find out later that our offer was technically higher than the accepted offer, but we wanted help with closing costs, and we can only assume they went with the deeper pockets.

When our realtor called with the bad news, he apologized for not being more active and attentive with us. He admitted he didn’t take us seriously until he realized we were actually going to make an offer.  (No, we will not be using his services again.)

In the end, I admit we were disappointed, but we knew if it was the right thing for us, it would have happened. There was no emotion involved.  We weren’t going to pay more than it was worth.  This was a totally different attitude than we’ve had in the past.

On to the Land of Laundry

We were moving on to better things….and along came the laundromat in our neighborhood. Early last year, the price was at $150,000. By the time we came into the picture, the price had dropped to $129,500. Our initial offer was for $119,500. Our offer was accepted and we moved into the due diligence stage of the purchase.

The Key to Negotiations…Research, Research, and More Research…and the Right Attitude

When negotiating, the more you know, the better your position. I’ve said it before, Laura is an information sponge. When she is interested in a subject, she will research it until she knows everything about it inside out. So why did we drop our offer to $105,000?  Laura noticed a sudden drop in the rent for 2014, but couldn’t determine why. It was actually the landlord that answered our question. He sent the seller an email and we were copied.

In the email, the landlord said that the seller would have to catch up on his back rent and late charges, as he hadn’t been paying his full rent for most of the year. Wait, what? Not paying his full rent? This was a little slippery on the sellers part, and it had quite an impact on our cash flow calculations.  (In other words, the annual net profit dropped, which means the value of the business went down too.)

I called our broker and sent the seller an email asking for an explanation. That happened on a Thursday, and we had plans to be away that weekend. (After months of nothing but laundry on the brain, we needed a mental break.) But now with the recent news, it wasn’t much of a mental break after all.

Anger Management

By that Sunday, we hadn’t received any response, and we were very angry about the whole situation (let’s face it, I was pissed!). We really thought this was the end of this journey. On Sunday afternoon, we went to a local coffee shop to relax before our drive home. I broke out my laptop and wrote a lengthy email to the broker.

Some key points I brought up besides the latest slipperiness (is that a word?):

We thought the laundromat had a lot of potential, but we would not pay for potential.

The current lease was above market rates. We had negotiated the renewal back down to market rates, but we still had to assume the stinky current lease and ride it out for three years.

In the industry there is a calculation for determining value. I presented our revised calculation, and made our final offer of $105,000. Take it or leave it.

And most importantly, we were not emotionally attached to being business owners. If this fell through, we would find another investment.

That attitude/thought process we had in the end was huge. We really were at peace with it and kept our emotions out of it. If it happened, great! If not, something better would come along. We were both totally prepared to walk away. Without that attitude, if we had let emotion creep in, we would have paid way too much and possibly struggled because of it.

We didn’t get a response until that Monday night, but our final offer was accepted.

Keep Calm and Use Your Head

As I write this, we are almost a month in, and all the numbers are right in line with our projections. It makes me think back to when we were deep in debt. Most of our spending was done with emotion and not logical thought. We have come a long way since then in how we view our purchases.  And we couldn’t be happier.

 

“Insufficient facts always invite danger.” –  Spock

Star Trek: The Original Series, “Space Seed”

We Bought a Laundromat…and It’s All About the Numbers

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UPDATE – We now have a NEW website, Laundromats101.com!
logo_no_reflectionThis blog, MyShinyNickels.com, will remain a personal finance website, while all laundromat-related goodies, including this blog post, have been moved to Laundromats101.com.
Click HERE to read this post on the new site…

WARNING: This post may be tedious and mind-numbing to some. Risks may include, but are not limited to: falling asleep, drooling and twitching. Proceed with caution.

We’ve been asked countless times…

“What made you decide to own a business?”

“Why a laundromat?”

“What kind of money are you going to make?”

If you’ve read through my blog at all, you already know that we enjoy watching our investments grow, tracking them every quarter and charting our progress. But admittedly, after a few years, it starts to feel a little like watching paint dry or grass grow. So we felt like it was the right time to diversify our investing into something else besides index mutual funds. (Note: The vast majority of our investments are still in index funds, we just wanted to take a chunk of it and do something a little more exciting. We may be bored, but we’re not stupid!)

In Search of Semi-Passive, Recession-Proof Income

But, it couldn’t be just any business. It had to be fairly passive (not a lot of work), and allow us to keep our day jobs, but still provide a nice return on our invested money. There are only a few businesses that meet this criteria, and a self-service laundromat is one of them.

Owning a laundromat is not glamorous or fashionable (but we hope to change that). 🙂  For us, it’s an investment. And when the economy is down, folks may eat out less or put the brakes on frivolous purchases, but clean laundry is a necessity.

Before we even made an offer, I was running numbers. We decided up front that we were comfortable investing $50,000 into a business venture. So I started madly running calculations so we could determine early on what kind of return we could expect, and whether the laundromat was worth our time and money.

Risk vs. Reward

A general rule of investing is that the riskier the investment, the greater the profits (or losses). With less risky investments, you may not get skyrocketing returns, but you won’t likely lose your shirt either.

Investing in a business is obviously riskier than just letting money grow slowly in an index fund, but we were willing to take a calculated risk with our money, and go for higher returns.

One of the ways we lowered our risk is by buying an existing business with an existing and steady customer base. Investing that $50,000 in a brand-new startup deli would be much riskier than investing $50,000 in a laundromat that has been in business for nearly 40 years.

Another way we lowered our risk was to buy a business that’s relatively recession-proof, as I mentioned before. No matter what the economy is doing, people never stop doing their laundry.

Let’s Dig In to the Numbers, Shall We?

Below are the initial numbers I ran before we even made an offer. I ran two scenarios; one for an all-cash purchase and one for a partially financed purchase.

Scenario “A” is the all-cash purchase, with no business loan. Initial investment would be the purchase price of $105,000 plus the start-up costs of $12,400, for a total investment of $117,400.

Scenario “B” is a 35% down payment, and financing the remaining $68,250 at 8.25% for 5 years. Initial investment would be the down payment ($36,750) plus the start-up costs of $12,400, for a total investment of $49,150.

Perfect. If we went with Scenario “B”, it would put us right around our target investment commitment of $50,000.

Scenario A-B Part 1

While we were fairly certain up front that we would be pursuing Scenario “B”, it never hurts to run additional scenarios.  While in some ways it would be nice to not have a portion of the business financed, on the other hand we liked the idea of sharing the risk with someone else (the lender). Plus, as you’ll see later, the return on our money is actually better with Scenario “B”.

Once we knew the amount of money we’d be investing, it was time to determine what the return on our investment may be, based on prior history for the laundromat. We took the average annual gross revenue for the prior 3 years, subtracted the most recent annual operating costs (expenses), subtracted the annual debt payments (applies to Scenario “B” only) and determined our annual profits/cash flow.

(Note: It’s critical to review the seller’s bank statements, tax returns and profit/loss statements. These documents will allow you to confirm his stated revenue/expense/profit numbers, or in some cases, reveal that he’s been less than truthful!)

Alright friends, let’s get back to the numbers…

In Scenario “A”, we bring in $49,570 in annual profit, but if you remember, we had to invest $117,400 to get it, which is a return on our money of 42.2%.

In Scenario “B”, we bring in $32,866 in annual profit, but we only had to invest $49,150 to get it, which is a return on our money of 66.9%.

Scenario A-B Part 2

To The Critics…

Some of you may be thinking… “Why don’t you just invest the full $117,000 in cash and get $49,570 in annual profit? You’ll still get a 42.2% return on your money, which is awesome!”

Well, because in the future we may decide to invest another $49,000 and buy a second laundromat and make another $32,000 annually off of that. I’d much rather invest $98,000 into two laundromats and get $65,732 in return each year, than invest $117,000 into one laundromat and only get $49,750 each year.

Plus, like I said before, we’re trying to spread out the risk and proverbially “dip our toes in” at this point. $50,000 was a number we were comfortable with, and we need to be able to sleep at night, ya know?

Cash Flow, ROI, Risk………Zzzzzzzzzz

So with all the numbers flying around, have I lost you yet? Well slap both cheeks, and splash some cold water on your face.

While I probably put you to sleep with all of the number-crunching, I still think it’s important to share it. That way you can see how we calculated our investment and the expected return. And the great thing is that even if the business doesn’t perform quite as well as predicted, the profits could go down quite a bit and it would still be a pretty decent return on our money, and for fairly little effort.

As time goes on, we’ll see how our results line up with expectations, and I’m sure I’ll eventually share that with you too.

Soon I’ll talk about our first few weeks of business, the remodeling we did and some before/after pictures. Stay tuned, my friends!

We’re Buying a Business…and The Ride is Finally Over

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UPDATE – We now have a NEW website, Laundromats101.com!
logo_no_reflectionThis blog, MyShinyNickels.com, will remain a personal finance website, while all laundromat-related goodies, including this blog post, have been moved to Laundromats101.com.
Click HERE to read this post on the new site…

I’ve been waiting to write this post for months. But, frankly, I didn’t even know what I would be writing. Would I be explaining how the business deal fell through, and why? Or would I be an excited new business owner, telling the tale of how it all came together in the end?

First, buying a business is not for the faint of heart. During the last 14 weeks, I’ve had…night sweats, heart palpitations, stomach cramps, laughter, tears of joy, bouts of sadness and pity parties. And at times, those all came in a single 24-hour period.

Truthfully, if we had known in advance the emotional exhaustion that would come during the buying process, we may have thought twice about embarking on this adventure. But thankfully, God doesn’t reveal what lies ahead in life, and I believe that keeps us from bailing out on opportunities that, while temporarily uncomfortable, will ultimately be a blessing.

Here’s How It All Went Down…

A few years ago, my husband and I daydreamed about owning a semi-passive business while we continued to work our day jobs. Residential real estate, an online store, a laundromat and a self-storage facility were all ideas that were tossed around. And while there are certainly exceptions to the rule, for the most part, it takes money to make money. And if you’ve read our story, we made good money, but we had a fairly substantial chunk of consumer debt and little to no savings.

We spent several years since then getting out of debt and then saving 60% of our income. Fast forward to November of last year, and the semi-passive business idea popped up again. But this time was different. We had money!

On a fairly uneventful night in mid-November 2014, I went online looking for local businesses for sale and found www.BizBuySell.com. I clicked the link, and started looking around. Would anything meet our semi-passive criteria? I restricted my search to narrow down the results, and as I scrolled down, I saw an ad for an unattended, self-service laundromat. It was listed for $129,500. Hmmmm.

The ad didn’t provide an address, but I could hardly believe what I was seeing when I realized that the pictures in the ad were taken at the laundromat in the shopping center less than a mile from our house. Could it be?

I sent an inquiry to the Listing Broker on the ad, and he got back to me the next morning. Yes, it was still for sale. Yes, it was the one less than a mile from our house. We signed a non-disclosure agreement (this meant we couldn’t discuss the specific details of the business with anyone) and the broker sent us the information sheet.

The Art of Negotiation

I won’t go into the painful minutaie of how the deal finally all came together, but there was a LOT of negotiating. Many people are involved in the sale of a business, and they all want to make sure they not only get what’s due to them but they want to be sure their investments or assets are legally protected as well.

This involved more contracts than I can count. So we went back and forth with the landlord, the finance company, the seller, the broker, the insurance agent…you get the idea. During the entire process, we stood firm that while we wanted to purchase the business, we were not emotionally attached to it. We were very clear that we would not pay more than the business was worth, that we would only pay a fair share of the closing costs, and that at any point we could walk away without hesitation.

As a result of our negotiations, we settled on a purchase price of $105,000, which was nearly $25,000 less than asking.

We Have a Deal…Or Maybe We Don’t…Or Maybe We Do…Or…

Even the night before our close date, we weren’t sure which way this deal was going to go. There were discussions going on behind the scenes well into the night that could have derailed the whole thing at any moment.

Finally, late in the evening on Friday, February 27th 2015, we heard the news. We would be closing the following morning. At 5am the next day, we rubbed the sleep from our eyes and met the seller at the store. He handed us the keys and went over some final ‘need-to-know’ items. At 6am, we heard the front door open. It was the first customer of the day, and as he dropped the coins into the washer, we both realized we had made our very first sale as business owners.

Technology is Super-Cool-Awesome

We’ve now owned it for a full week as of today, and as I sit in a local Panera café writing this on a sunny Saturday morning, we’re making money.  When we go out to catch a movie tonight, we’ll be making money.  Before we even wake up tomorrow morning, we’ll be making money.  We haven’t had a single customer call, and in the first 6 days, we pulled in $2,476.

Not bad for a business that:

  • Has doors that lock/unlock automatically at opening and closing
  • Has an alarm system that automatically arms/disarms at opening and closing
  • Has a lighting system that is turned on/off automatically at opening and closing
  • Has an on-site change machine to provide change for customers
  • Has equipment that is completely customer-operated
  • Allows for 24-hour surveillance via any internet-enabled device

Isn’t technology amazing?

The store opens and closes completely on its own. There will certainly be times when we need to go in and do some repairs or maintenance, but for the most part, we will go in and collect money twice a week and to check on things. The store even has a janitorial service that comes in and cleans every night of the week and makes sure everything is ready for opening the next day.  It’s also nice that we are paid immediately in cash, so no invoicing or billing to do.

Alright, this post is long enough, so I think I’ll save the number-crunching for next round. But I promise to show you how everything shook out at the end, how much we finally invested, what our projected incomes and profits will be, and the annual return on our investment.

I’m also looking forward to showing you the before and after pictures of what we’ve done with the place, and how inexpensive it was.  Later I’ll talk about our plans for the future and how we’re going to incorporate this business into our early retirement plans.

There’s no doubt this has been a wild ride so far. But we’re excited and hopeful. Business is going great, we’re already remodeling the store, customers are excited for the changes and things are going even better than we imagined.

Until next time…

We’re Buying a Business…Update #3-and-a-Half

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UPDATE – We now have a NEW website, Laundromats101.com!
logo_no_reflectionThis blog, MyShinyNickels.com, will remain a personal finance website, while all laundromat-related goodies, including this blog post, have been moved to Laundromats101.com.
Click HERE to read this post on the new site…

Ok…this isn’t a full-fledged post, but an update none-the-less, so I decided to call this Update #3-and-a-Half…

This afternoon, while driving back from the Bay Area, we got a phone call from the broker…

WE HAVE A DEAL!

In the end, the seller wasn’t willing to pay his half ($5,000) of the lease assignment fee, but the broker was willing to lower his commission on the sale in order to get the numbers to work.  (Note: I’m glad the deal came together, but disappointed that the broker had to take a lower commission in order for it to work. He’s put in a lot of legwork and I feel he deserves his full commission. But it is what it is.)

We’re now in escrow, and should close in 3-4 weeks.  At that point, we get the keys and begin the next chapter of life as laundromat owners.  A semi-passive income stream such as this coin laundry is something we’ve been planning and thinking about for a very long time, and we’re excited that it’s coming together.

And trust me when I tell you that I can hardly wait until we close so I can post pictures, as well as go into all of the financial details, including our estimated return on investment, etc.

We’ve also got a laundry list (sorry, I couldn’t pass that one up) of improvements we want to make, all while sticking to a budget.  There will be plenty of before/after photos to post as well.

Sorry for the short post, but I couldn’t wait to give everyone the latest news!

We’re Buying a Business – Update #3

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UPDATE – We now have a NEW website, Laundromats101.com!
logo_no_reflectionThis blog, MyShinyNickels.com, will remain a personal finance website, while all laundromat-related goodies, including this blog post, have been moved to Laundromats101.com.
Click HERE to read this post on the new site…

Despite the relative silence here on the blog lately, things have hardly been quiet at our house. In fact, purchasing the business consumes my mind and my time much more than I thought it would.

It’s been the cause of several (nearly) sleepless nights, plenty of heated discussions and admittedly quite a bit of stress.  But we’re getting down to the final weeks, and the many details that are involved in this process are coming to a close.

Since I last checked in, we:

  • Received approval from the lender for the small business loan we applied for
  • Liquidated $50,000 from our investment accounts for our down payment and start-up cash
  • Have met with the seller 15+ times to watch how he collects money, performs maintenance and how he generally runs the business
  • Received conditional approval from the property manager to assume the existing lease
  • Negotiated a 12-year lease extension to begin in 2018, with a lower monthly rent payment
  • Have twiddled our thumbs a whole heck of a LOT

Now it all comes down to one…last…detail. But it’s a big one. The deal could go through, or it could fall apart, pivoting all on this one single issue.

And The Issue Is…

Let me start by saying that it’s fairly common for a commercial property manager to charge a small fee to assign (transfer) an existing lease from a prior tenant to a new tenant. It can typically range anywhere from a handshake to upwards of $5,000. This fee is typically paid by the seller (but of course nearly everything is negotiable), and covers the costs associated with attorney review of the lease, review of financial documents submitted by the buyer, etc.

So…last week, we finally received our conditional approval from the property manager to assign the lease to us once the business closes escrow. (It’s similar to qualifying for a loan; you submit lots of financial documentation, account statements, tax returns, etc. They want to be sure you are financially sound enough to take responsibility for the lease payments.)

However, as we made our way down the conditional approval letter, one of the “conditions” they are requiring is an assignment fee of $10,000.

Yup. $10,000. Yikes.

We were warned by the business broker up front that this property manager could be difficult, and that they may charge a hefty assignment fee. But we still weren’t prepared (and neither was our broker) for that number. It didn’t give us too much pause though, as we figured that it’s technically a seller fee, and our seller is very motivated.

He would pay it…wouldn’t he?

The Seller’s Response

Should have known it wasn’t that simple.  The seller has refused to pay the fee, stating that he is taking a loss on the business as it is, and won’t put any more money into the deal.

But here’s the deal (no pun intended, truly).  The business is in fact worth less than when he bought it. That’s a bummer, I get it. But that is due in large part to him not reinvesting into the business as he should have, and letting the net profits drop, which lowers the value. Maintenance of the laundromat has been at a bare minimum, and it shows. It needs some major TLC. (Although, amazingly, it still makes a very solid profit considering its condition.)

In fact, the poor condition of the laundromat is one reason why we’re buying it.  We want to buy a distressed business that is still doing relatively well, and improve it.  But we’re only going to pay what it’s truly worth now, not what it could be worth down the road.

Is Our Offer Fair?

There are industry-specific formulas that help with the valuation of coin laundries, and the offer we made (which was accepted, mind you) was well within that window. So we feel we are paying a very fair and decent price for the business.

With that said, I understand there is a mental hurdle he has to overcome. No one likes selling something for less than they bought it. (But to be clear, he has been making a nice annual profit each year. It’s just that the actual sale price of the business itself is less than he paid four years ago.)  He feels that our accepted offer reflects a “discounted”, “steal-of-a-deal” price.

The reality, however, is that the price of any commodity or real estate or business is dictated by what a buyer is willing to pay, not what a seller believes it is worth. So while he may feel like he’s giving us a real “deal” on this business, that’s not how it works. We offered what we felt it was worth, and he accepted.

Where We’re At Now

We’re in an odd holding pattern. The seller is refusing to pay the $10,000 fee, as he feels he has “lost enough”, but we don’t feel it’s appropriate that we should have to pay it either, so we’re at a bit of a standstill.

So earlier today, Randy and I discussed our goals and our comfort levels, and came up with our “final offer.” In fact, right now as I type this post, we are in the middle of negotiating.

Take It, Or Leave It

We have just offered to split the $10,000 fee with the seller, 50/50.  (We think that’s pretty generous, given that he’s far more motivated to sell than we are to buy.)

If he agrees to pay half, then we have a deal and we open escrow immediately.

If he does not agree to pay half, the deal is off.

Final Thoughts…

On one hand, we don’t like the idea of putting any more money into this business deal. But on the other hand, it seems silly to throw away the entire deal over another $5,000 out-of-pocket. Especially if that additional $5,000 was the only thing that stopped us from buying a business that could have changed our lives for the better, and allowed us to retire even sooner than our original 7-year (now 6-year) plan.

Just now, the broker responded saying he received our final offer and that he would reach out to the seller and see what happens. Now we cross our fingers, and wait…

We’re Buying a Business – Update #2

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UPDATE – We now have a NEW website, Laundromats101.com!
logo_no_reflectionThis blog, MyShinyNickels.com, will remain a personal finance website, while all laundromat-related goodies, including this blog post, have been moved to Laundromats101.com.
Click HERE to read this post on the new site…

If you’ve been following along lately, we’re in the process of buying a business.  For this round, we’re gonna have a little “Q and A” fun. I’ve been sent a lot of questions recently and I’ve got a lot of answers. So let’s dig in.

How Did Your Meeting With the Seller Go?

We expected it to go well, and it went even better than that. Turns out it’s a husband and wife team, and they invited us to their lovely home to go over details about the business; Coin Laundry Basics, Store Management, Repairs, Income/Expense Review, Bank Statement Review, etc, etc.
We sat down at their kitchen table, and among stacks of financial records, still managed to have some great conversation and even a bit of laughter. (Who knew that owning a laundromat could provide such an array of interesting and humorous stories…and did you know that a rogue bra wire is one of the most common causes of commercial washing machine breakdown? Me either.)

What Was the Most Important Thing You Wanted to Know?

Well, there were a lot of important things we wanted to know, but one of the first things we asked was why are they selling the business in the first place? If a business is doing well and bringing in a good net profit, why would anyone sell it? (No, really. Why?) There’s always a reason, and you need that information to make an informed purchase decision. You want to be sure they’re not selling because they’ve become aware of something that will cause business to drop…such as a new competitor down the street, a dramatic rent increase, etc.

I won’t divulge the seller’s reason for selling because we’re still in escrow, but their reason was very logical, and I did my own cyber-sleuthing to verify and fact-check what they stated. It all checked out.

What Are Some of the Things You Looked For During Your Financial Review?

A whole heck of a lot, I’ll tell you that.

We looked at tax returns, utility bills, profit and loss statements, and bank deposits. We identified any odd spikes in expenses or dips in revenues, and investigated them. It all checked out.

This is fascinating stuff, I know. Please hold back your enthusiasm.

So, Why Are You Buying this Business, Anyway?

We’ve been looking to supplement our early retirement savings for quite a while now. A semi-passive business around the corner from our home that leverages our skillsets while giving us a very nice return on our money seemed like the perfect thing.

But we’re not sure what our exit strategy is quite yet. If the semi-passive laundromat business model turns out to be one we really like, we may pursue a second or even a third store down the road. The cash flow from just this one store would move up our early retirement timeline by a couple years. But more than one store would really put our nest egg into overdrive.

And when that day of retirement nears, we have a few options…either quit our day jobs and spend a couple hours a week running the laundromat(s) for a very nice annual income, or sell off the business for a tidy sum, add it to our nest egg and retire completely.

What Kind of Paperwork Did You Have to Provide?

We handed over bank/investment statements, tax returns, pay stubs, personal resumes, and a business plan.  This was so that the property manager can approve us for a lease, and the lender can approve us for a small business loan.  We’ve spent many hours this last week pulling all of the information, and filling out all sorts of detailed, mind-numbing paperwork. By the time we were done, the stack was several inches thick!

The business plan was particularly tedious; it’s a document that outlines the details on how we plan to fund the purchase, our plans for improvement, how we intend to manage and operate the business, a forecast of revenues/profits for the next 5 years, a break-even analysis, blah, blah, blah.

A business plan is a common requirement for business loans and even some commercial leases. In our case, the loan is small enough that a Business Plan wasn’t technically required.

But truthfully, creating it turned out to be a mutually beneficial task; not only does it demonstrate our business acumen to a prospective lender or property manager, but it was also a great way for us to visualize our financial goals for the business and walk through how we plan to meet them each year.

So…What Now?

Last night our broker came to the house to review our 3-inch stack of paper, and organize it into a final package to the lender and to the property manager.
Besides a few little extra boxes to check, and a couple of pay stubs we missed, it was all there. The broker said it was one of the most complete business acquisition packages he’d seen in a very long time. Well, that’s a good sign.

Soon enough we were saying our goodbyes, and he left. But as he walked out our front door and down our driveway with our paperwork under his arm, I got a stomach cramp. The cramp remained there the rest of the evening and well into this afternoon. We are taking the next step and that fact both excites and frightens me. This is new territory for us.

What if something doesn’t work out? What if the lender doesn’t think we have enough business experience? What if our net worth isn’t high enough? What if we missed something in our financial review? What if…what if…what if.

But for now, we just sit.

And wait.

We’re Buying a Business – Update #1

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UPDATE – We now have a NEW website, Laundromats101.com!
logo_no_reflectionThis blog, MyShinyNickels.com, will remain a personal finance website, while all laundromat-related goodies, including this blog post, have been moved to Laundromats101.com.
Click HERE to read this post on the new site…

Last time I checked in, I told you that we’ve decided to pursue the purchase of a self-service coin laundry business. That is still the case, and for the last few weeks we’ve been completely immersed in coin laundry industry jargon. Who knew there was an entire underground (well, sort of) community of people who live and breathe the laundry business? No joke. I can now state with complete confidence that it’s true.

Everything from how to decide on what your wash and dry vend prices should be, to accurately estimating the value of an existing laundromat, to discussing the minutiae of utility usage.

Terms like ‘turns-per-day’ (how many times the average machine is used per day) and ‘water bill analysis’ (a method of using the water bill to support the seller’s stated monthly incomes) are things we’ve become very familiar with.

Why all of this knowledge absorption?  Well, we firmly believe that one of the best things you can do when going into business (whether you’re starting new or buying an existing one) is to soak up everything you possibly can on the industry you’re interested in. This is critical not only for your own continued success in the industry, but it’s just as important to have this knowledge before you even make an offer.

As part of the business purchase process, you need to have confidence. You must be able to speak intelligently to industry concepts and terminology.  Not only will this make the parties involved (business brokers, sellers, lenders) take you more seriously, but they will be less likely to take advantage of you if you sound like you know what you’re talking about.

In our case, we have a bit of a leg up, as Randy works full time as a Production Manager for a large commercial laundry company. But running a commercial laundry plant and owning a laundromat are still fairly distant cousins in the laundry business “hierarchy”.

So what are we doing right now? Well, we’re knee-deep in digital paperwork.

After signing a confidentiality agreement, we received the first half of what I call the due diligence records. By this I mean that the seller has provided a large chunk of detailed financial information…profit-loss statements, revenue and expense records, utility bills, lease terms, etc. However, we are still waiting on some other documents…more recent utility bills and the Schedule C forms from the last 3 years of income taxes, to name a few.

And because I’ve been Mrs. SpongeData LaundryPants lately, and am fairly familiar with laundromat valuations and income/expense statements, I can actually review these records and make a fairly quick assessment of whether the business is something we should continue to pursue.

The verdict?

So far, so good. We’re moving forward.

However, it’s important to note that our signed purchase contract is extremely flexible; we could essentially back out for absolutely no reason at all.

We’re meeting with the seller for the first time on Saturday afternoon to go over details of the business, procedures, etc. I’ll give you an update afterwards and let you know how it goes…

…oh, and before I forget, I just did a podcast interview on the financial blog site, HisandHerMoney.com! Go check it out HERE!

The site is run by a husband-wife team, Talaat and Tai McNeely, and they are two enthusiastic and fun people you should get to know. Plus, you’ll now get to match my face to a voice. (Does anyone else think they sound strange when they hear their voice played back?)

LIFE UPDATE…We’re Buying a What???

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UPDATE – We now have a NEW website, Laundromats101.com!
logo_no_reflectionThis blog, MyShinyNickels.com, will remain a personal finance website, while all laundromat-related goodies, including this blog post, have been moved to Laundromats101.com.
Click HERE to read this post on the new site…

HAPPY THANKSGIVING ALL!

So a whole heck of a lot has been going on at our house lately. (Not sure why I’m stating that as something notable. There’s pretty much something always going on at our house.)

If you remember from my last post, Randy was offered a lump sum payout from his former employer, in lieu of a small annual pension at age 65. And it was pretty much a no-brainer that we would take the lump sum and directly roll it over to a Traditional IRA, to avoid heavy taxes and penalties (and of course, allow that money to reach its full potential). So that’s what we did.

Just two weeks later, another opportunity crossed our path.

But before I get to that, you should know that for a while now Randy and I have been studying the 3 core pillars of building wealth. Meaning, that the vast majority of wealth in the world has been achieved through one or more of these three areas. (Yes, I realize there are other ways of building wealth, but “movie star” and “rap artist” are not on my short list.)

As a textbook reminder, the 3 pillars of building wealth are…

  • Investments (stocks and bonds)
  • Real Estate
  • Owning a Business

We’ve got #1 pretty much taken care of. We invest 50-60% of our income each year in low-cost index funds. With some decent returns, that pillar alone should allow us to reach our early retirement goals.

However, the other two we’ve only dabbled a bit.  We considered pursuing real estate properties (and that still may be a possibility in the future), but we decided to start focusing on owning a business. We already knew it had to be a business that was structured just right to allow us to keep our day jobs (semi-passive income), required an initial investment of less than $50k (this is the most we’re comfortable parting with), and could either be run from our home or within a short distance of it. Needless to say, most business models don’t fit that criteria.

Until that opportunity I mentioned came along a few weeks ago.

It was an opportunity to purchase a semi-passive business, requiring an initial investment of less than $50k, that is less than a mile from our house.  Perfect.  What is it?

A self-service coin laundry.

It’s been a neighborhood fixture, running successfully for nearly 40 years. And after a week of intense research and working closely with a broker, we made an offer to the seller. And crossed our fingers.

(Note: Our purchase offer is contingent on a whole boat-load of things, that are yet to be confirmed…income and expense verification, reviewing of the lease, etc, etc)

Two nights ago, our offer was accepted.

Now we start the due diligence process, of verifying everything. If all checks out and goes as planned, in a few months we will be the new owners of a small coin laundry business.

I’ll be updating the blog every so often to talk about the process of acquiring an existing business, what kind of return we expect to see on our initial investment, and how we plan to use this business to further build our investment portfolio towards early retirement.

I’m going to refrain from revealing exact purchase price figures until we’ve closed escrow, out of respect to the seller and others involved. But don’t worry, there’s plenty of things to talk about until then, and once the process is complete (one way or the other), I’ll dig into all the juicy numbers.

So I invite you to join us in this journey…I’m sure we’ll all learn something new along the way.  (There really isn’t a dull moment around here, is there?)

 

“Twenty years from now you will be more disappointed by the things you didn’t do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover. “

Unknown Author

We’re Getting an Unexpected Windfall…What Would YOU Do With It?

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Every once in a while, a sweet little cash angel may drop an unexpected gift in your lap.  Sometimes it’s just $20 from a coat pocket, or a crisp $100 bill laying on the ground (this actually happened to me).  But if you’re lucky, it turns out to be a whole lot more than that.

On Monday we received a letter in the mail.  It was from Kodak, my husband’s former employer, asking if he wanted to cash out his pension benefit.  It’s not a large pension, but it would have provided a fixed $6,600 annual payment once he turned 65.   Now they want to cash us out with a lump sum.

Hmmmm.  Interesting.

Turns out we have 3 options:

  1. Take the lump sum in cash (which means a 20% tax withholding and a 10% early withdrawal penalty)
  2. Receive the annuity as originally intended
  3. Take the lump sum and roll it directly over to another qualified retirement plan (no tax withholding or penalties)

So how much is this unexpected chunk of money they’re offering?  

$32,050.20

And with unexpected chunks of money, come decisions.

Decision #1

Take the lump sum in cash?  No way.  Uncle Sam will take 20% in taxes right off the top, as well as a 10% early withdrawal penalty because Randy is not at least 59 ½.  (And… we could still have a huge bill come tax time depending on which tax bracket that extra cash pushes us into. Ack.)

Leave things as they are and just receive a monthly check?  No thanks.  We can invest the entire lump sum ourselves, and get a better return than if we took the monthly annuity option.  So that leaves us with…

Roll over the entire lump sum into another qualified retirement plan?  Yes, please.

Why?

We don’t want a single cent to go to Uncle Sam…yet.   We want every dollar working for us, growing over time.  When it’s time to withdraw, the government will get their cut.  But for now, we want tax-free growth.

And in order to accept the lump sum without that tax withholding or the early withdrawal penalty, it must be transferred to another tax-deferred plan such as a Traditional IRA or a 401k.

Decision #2

Traditional IRA or Randy’s current employer 401k?

If we roll it over to a Traditional IRA, we can’t make (penalty-free) withdrawals until he turns 59 ½, but the IRA will allow us access to all of the low-fee index funds we want to invest in.  If we roll it over to his 401k, he can withdraw the money beginning the year he turns 55, but our investment options are limited to only those his employer offers.

So…drum roll…we’re going to take the lump sum and roll it over to a Traditional IRA.

We’ll have enough saved in other accessible accounts when we begin our early retirement that we shouldn’t need to access this money (or the money it generates) until after he turns 59 ½.  So we’ll open a Traditional IRA, invest the cash in solid index funds and let it marinate for a while.

The decision, for us, was fairly easy.  We looked at each scenario logically, and determined that we would get the most benefit from rolling it into a Traditional IRA.

Why I Am Telling You This Less-Than-Fascinating Tidbit of Our Life

As I said, the decision for us was pretty easy.  A little bit of math and a long-term wealth-building outlook, and we had our answer.

But the sad truth is that for others who find themselves with a lump sum of cash, the decision is made with emotions, not logic.  They don’t have the luxury of sitting back and deciding how this windfall could benefit them long-term.  They can’t see beyond next week,  let alone 5…10…20 years from now.

When your financial life is in chaos, you just take the cash (and the 30% tax/penalty hit) and run.  Maybe there’s unpaid credit card bills, or you’re behind on your mortgage.  So you cash out to get yourself back above water.  Or worse, you see a big shiny car/boat/thing-a-ma-jiggy that has your name on it.

(Now, just so I’m clear, if you’ve got debt, and your intent is to pay it down and become debt-free, then cashing out and paying it down (or off!) is the best thing you can do.)

But my real point is that when your financial life is in order, you can make the decision using logic, allowing that windfall to really work for you. 

A jumpstart towards building wealth.

So don’t wait and hope for a windfall to rescue you from your money troubles.   Get (or stay) debt-free now, so that if/when the sweet little cash angel drops a windfall in your lap, you can use it to really build wealth and be ahead of the game.

 

 

P.S.  Remember that $100 bill I found?  I was 18 years old, on vacation in Hawaii.  I was walking down a path to the beach at Hanauma Bay, and there it was, a fresh $100 bill just lying on the ground.  Not a soul was in sight, so I picked it up and stuffed it in my beach bag, with a grin a mile wide.

Fast forward to a few months ago, and I’m telling the story to my son.  With a look of excitement, he asked if I still had the $100 bill.  I told him, no, of course not, that was almost 20 years ago.  Then he stomped off and pouted, mad that I had spent it.  It was kinda funny, but I have to say I agree with him.  Sigh.

You Don’t Want To Know What Your LAZINESS Is Costing You

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Two months ago, our washing machine stopped working in the middle of a wash cycle.  It’s 15 years old, so we figured it may actually be time to look for a new one.  But if you know us at all, we weren’t going down without a fight.

After some googling, we found it was a simple 2-minute fix.  Literally.

How many people would have called a technician, or worse…bought a brand new washing machine?  (Strangely enough, just a few weeks later, some friends of ours had the exact same problem.  They were just a hair away from buying a replacement, as they didn’t really believe it could be as simple as we described.  They went home, and sure enough…that was exactly the problem. Saved them from spending an unnecessary $700. You’re welcome, friends-to-remain-unnamed.)

Fast forward to this afternoon.

We returned home from an anniversary weekend in Lake Tahoe, and upon walking in, noticed a slight chill in the house.  Which was great news.  Our super awesome Nest thermostat had sensed we were away so the temperature inside the house had dropped to 60 degrees.

And while 60 is not unbearable, I prefer not to wear a ski parka inside. And as I already said, because the Nest is super awesome, it detected that we were home and automatically turned on the heat to reach our preferred 69 degrees.

The efforts to unpack continued, and about 10 minutes later, I noticed something.  Or the lack of something, rather.  The heat still wasn’t on. I stood in front of the family room vent.  No cozy gusts of warmed air.  I went to our bedroom and stood in front of that vent.  No air flow there either.

So I went back to the thermostat in the hallway.

It did turn it on, didn’t it?  It says the heat is on, but there’s no air coming from the vents. Fabulous.

[Randy walks up to me as I stand at the thermostat]

Randy: Didn’t the heat come on when we came home?

Me:  Yes. Well, it’s trying to come on.  I can hear the furnace buzzing, so I’m pretty sure that at least the power is on, but no air is coming out.

Randy: Great.

Me: Yup.

We were home no more than 20 minutes, and we were already putting our DIY caps on.

I checked a few more things to help rule stuff out.  Does the fan/blower work on the manual setting? Yes.  Are the batteries in the thermostat good? Yes. Did we trip a breaker?  No.

So we knew it wasn’t the fan/blower, or dead batteries or a tripped breaker.

Randy got out the ladder, and I got out my laptop and started googling…

I googled “furnace turns on but no air blows”…

I found a few sites right away that gave a list of things to check before calling the HVAC guy.  After turning off the power at the breaker (of course), Randy climbed on to the roof and removed a few service panels on the unit.

Note: Don’t pay attention to the uncut grass. We’ve been gone, okay? I know you just looked. Dang it.

We went through those initial easy fixes, none of them did the trick.

So I googled the actual brand of our furnace, American Standard, which led to some forums on how to troubleshoot problems with that furnace brand. Turns out there’s a blinking red light on the circuit board of our furnace that helps diagnose the problem.

Me: [yelling up to Randy on the roof] Is there a blinking red light anywhere???

Randy: Yes. It’s blinking 3 times.

So I googled that, and it turns out that means it’s the “pressure switch”.  I described the pressure switch, and after a few moments, he found it.

Me: [still yelling] It says to disconnect the rubber tube that leads from that switch, and blow through it to make sure there is no debris or bugs or water.

Randy blows through the tube, and reconnects it.

See that big orange tube?

I turned the breaker back on.

I ran back in the house and switched the thermostat on to get the heat to kick in.  And we waited…then a few l-o-n-g seconds later…WHOOOOOSH!

Gloriously warm gusts of air were pushing their way through the vents…

IT WORKED!

Our house is now a balmy 69 degrees, just how we like it.

Why do I tell you this silly story?

  1. Fixing it ourselves meant we didn’t have to wait for a service technician to come out.
  2. The fix cost us $0.00.
  3. Not all service technicians are honest.  A “good” one will make the easy fix and charge you just the $50 service call fee.  But a “bad” one will make a small problem seem enormous and charge you for labor and parts you don’t even need, easily meaning a bill of $500 or more. And you can’t always tell the “good” from the “bad”.

So don’t be lazy.

The point is to at least TRY. When something breaks, gosh darn it, just Google it.  Or Bing it.  Or whatever-search-engine-you-use it.  Even just running through the “Top 10 Things to Check Before Calling the Service Tech” may help save you some cash.

 

Because the truth is that money should be invested, earning you more money, and not lining the pockets of Big Al’s Furnace Fixers.

Like I’ve said in nearly every other DIY post, we’ve saved so much money by not throwing money at every creak, clink and rattle.  Even if it means asking a handy friend to come over and look at it with you for a promise of pizza and beer, that works too.

Your laziness is costing you money.  Literally.

I’ve gotta ask, partly because I’m nosy, and partly because well, never mind. I’m just nosy.  Have you fixed anything yourself? How much did you save?

 

 

**********************************************************

Now for one last thing , just so I can sleep a little better tonight…

Disclaimer / Legal Mumbo-Jumbo:

DIY projects, such as those mentioned above, are performed at your own risk.

As with any do-it-yourself/DIY project, unfamiliarity with the tools and process can be dangerous. All DIY-related posts should be construed as theoretical advice and aesthetic inspiration. Improper use of tools could result in damage to your property or serious bodily injuries. MYSHINYNICKELS.com is not liable for any damage or injury resulting from the DIY projects listed or referenced.