Laundry in Chicago with Seller Financing
Sep 1, 2023
Introduction:
In 2023, Alex, an entrepreneur, identified a prosperous coin laundry business in Chicago, boasting advanced machinery, diverse revenue streams, and an impressive customer experience. To acquire this asset, Alex embarked on a strategic financial pathway.
Deal Structuring:
1. Purchase Price: The laundromat's price tag read $889,590.
2. Down Payment: Remarkably, Alex clinched a zero-down deal.
3. Seller Financing: The seller was convinced to finance 40% of the buying price, which totaled $355,836, at a 4% annual interest rate, repayable over 15 years.
4. Bank Loan: For the remaining 60% (amounting to $533,754), a bank loan was arranged at 9% interest, repayable over 10 years.
Acquisition Dynamics Post-Amortization Adjustment:
Seller Financing Terms: For the seller-financed amount of $355,836 at 4% over 15 years, the monthly payment due to the seller worked out to approximately $2,628.
Bank Loan Dynamics: The bank's 9% interest on $533,754 over a 10-year tenure required Alex to make monthly payments of approximately $6,789.
Cumulatively, Alex's monthly commitment to cover both debts was about $9,417.
Post-Acquisition Business Operations and Financials:
Cash Flow Analysis: The business's existing cash flow was $220,630 annually, translating to around $18,386 monthly. After settling the monthly obligations of $9,417, Alex was left with a comfortable net cash flow of approximately $8,969 monthly.
Operational Strategy: The business's semi-absentee model meant that Alex's direct involvement was minimal, allowing him the bandwidth to explore other ventures or concentrate on growth strategies for the laundromat.
Efficient Employee Dynamics: With the laundromat's "wash, dry, fold" services offsetting all employee costs, operations sailed smoothly with the present team of three.
Optimizing Additional Revenue Streams: Alex actively promoted and optimized multiple revenue sources, especially vending and mobile-based services, amplifying the establishment's profitability.
Conclusion and Takeaways:
This deal illuminates the power of creative financial structuring in business acquisitions. By negotiating extended amortization terms on both the seller financing and bank loan, Alex not only minimized monthly obligations but also maximized monthly cash flows. The endeavor showcases the importance of negotiation skills, a deep understanding of financial instruments, and the ability to leverage them effectively.