What to look at when buying a Dry Cleaner Business
A friend of mine brought a business proposal for me to look at. Its a Dry Cleaning business in a nice part of Houston [if such a claim can be made]. The owner wants $490k for it and it apparently generates about $150k in net income. Not knowing anything about these sort of things I called my uncle [well he's not really my uncle and I never met him] and asked him what he thought about it.
Uncle had some really great points. These sort of businesses are cash-businesses. There’s lots of scope for employee theft or partner theft if its run by a partner. It also means the owner can cook the books and show less income. However if the owner knows he going to sell the business in 2 years, he can divert income from one cash-business to another, thereby making seem more profitable and thus worth more money.
In this business, a lot of revenue comes from contracts from hotels. Since the previous owner knows what the deals are, he can undercut your pricing and steal your business. He proudly told of a friend of his who did that to the guy who bought his dry cleaning biz and drove him out of business in 6 months. [Bad karma if you ask me, but thats life I guess]. Moral is make him sign a non-compete and have him carry back as much of the purchase price as possible.
You also want to work there for a month to see if its really generating the revenue that the seller claims it is. That also constitues training if you’ve never worked in a dry cleaners before. You should compare the revenues for that month to the same month last year. [In places like houston, revenues in summer are probably higher].
He also mentioned that if you opening any biz in partnership make sure its within an hours drive of where you live or a 2 hours flight. If your partner claims a piece of machinery breaks down and it’ll cost 20k to fix it or replace it, you need to be able to go there immediately and see if thats the case. If you live a 6 hr flight away it might cost you 2k just to fly there on short notice.[you're not going to stop biz for 2 weeks just so you can get a cheap flight!]
And always the standard question of why is the owner selling such a profitable business. They’ll usually say they’re getting out of the business or moving to some other country. Find out if the owner has any more dry cleaning businesses that he’s not selling and my use to cannibalize your business.
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February 2nd, 2006 at 1:18 pm
Very interesting. Around my area in south tampa there is A LOT of dry cleaning businesses and they seems profitable.
I wouldn’t mind purchasing a dry cleaning business myself matter of fact.
February 6th, 2006 at 6:27 pm
Good post.
Do advise your friend to pay special attention to environmental issues, too. Dry cleaners use a lot of chemicals — some more harmful to the environment, people and groundwater than others.
And it’s important not to stop the due diligence just with the chemicals being used today — look into past usage, and more importantly, past dispoal of chemicals. That stuff can come back to haunt a business decades later.
April 28th, 2006 at 4:13 pm
Anyone have any other advice for buying a dry cleaners? Standard eranings multiple to pay? I am in Houston also and am interested in doing so.
Thanks.