The owner offered to sell me the laundromat for $150,000. Is this my chance?

The question

An illustrative letter.

The answer

My dear, eight years of running the place means you already know things no outside buyer could learn: which machines break, which days are busy, who the regulars are. That is a real advantage. I spent decades on the lender's side of the desk, though, and I can tell you that loving a business and knowing it can carry a loan are two different things. Let's look at both.

How do I know what the business really earns?

Ask for documents, not stories. A retiring owner may honestly believe the business does better than it does, or may count cash that never reached the books. Request at least three years of business tax returns and profit and loss statements. Then ask for the water, gas and electric bills for the same years. In a laundromat, utility use rises and falls with the number of loads, so the bills are a useful check on whether the sales figures are real.

You know the business well enough to test the numbers yourself. Do the sales on the returns match what you see on a busy Saturday? Do the expenses include everything, including repairs, insurance and rent? Your experience is a tool here.

What else should I check?

• The lease. In a laundromat, the lease can matter as much as the machines. How many years are left, are there options to renew, and how much can the rent rise? A business without a secure lease can lose its location and its value.
• The machines. Make a list of every washer and dryer, its age and its condition. Older machines may need replacing soon, and that cost belongs in your offer.
• Debts and liens. Make sure the equipment is free of loans or claims, or that they will be paid off at closing. An attorney can search the public records.
• Permits and contracts. Check licenses, service contracts and any card payment or vending agreements.

How do buyers pay for a business like this?

Most combine several sources. Your $20,000 can be your down payment. Lenders that make loans backed by the U.S. Small Business Administration finance many business purchases, and they generally require the buyer to put in some money of their own, often around 10 percent or more of the project. In some cases, part of a seller's loan can count toward that if it is held back from repayment for a set period. Lenders can tell you the current rules, which the SBA updates from time to time.

Seller financing is common in sales like yours. The owner agrees to receive part of the price over time, with interest, instead of all at closing. A seller who is willing to do this is also showing confidence in the business, and in you. For smaller amounts, SBA microloans of up to $50,000 are made through nonprofit community lenders, which also often help with planning.

Can the business carry the loans and pay me?

Let's test one example. Suppose you put down $20,000, borrow $100,000 from a bank at 10 percent over ten years, and the owner lends you $30,000 at 6 percent over five years. Your payments would be about $1,322 and $580 a month, roughly $1,900 in all, or about $22,800 a year.

The business needs to earn enough to cover those payments, pay you a fair wage for the work you already do, and still leave room for repairs and slow months. Many lenders like to see cash flow comfortably above the loan payments, often by about a quarter. If the profit, after paying you, barely covers the loans, the price may be too high, or the terms need to change.

How do I know the price is fair?

A small business is usually valued on the profit it can reliably produce, plus the condition of its equipment and the strength of its lease. A business appraiser or a broker who knows laundromats can give you an independent view. If your review turns up old machines, a short lease or weaker profits, those are fair reasons to offer less.

Who should be on my side?

A CPA to review the books and the financing, and an attorney to handle the purchase agreement. Ask them about buying the business's assets rather than the company itself, a promise that the owner will not open a competing laundromat nearby, and a period during which the owner helps with the handover. These are standard requests.

Is this my chance?

It could be. You know the work, the customers and the machines. If the numbers hold up, the lease is secure and the payments leave you a fair living, buying the business you have run for eight years can be one of the best steps you ever take. Check carefully, and then go forward with confidence.

One thing to do this week

Ask the owner for three years of tax returns, the utility bills for the same years and a copy of the lease, and review them with a CPA.