Selling a laundromat in Canada

A laundromat appeals to many buyers because people always need clean clothes and the work can be fairly hands off. That same appeal means buyers look hard at two things: whether the sales are real, and how much life is left in the machines. Here is what to expect and how to prepare.

What buyers look at first

Most buyers of a laundromat ask the same questions early. Have clear answers ready before you list:

• Sales and profit. Two or three years of numbers, split between self serve machines and any drop off, wash and fold or commercial laundry work.
• How customers pay. Coins, bills, cards, a loyalty card system or a payment app, and how each one is recorded.
• The machines. How many washers and dryers, their sizes, ages and condition, and what has been repaired or replaced.
• Utilities. Water, sewer, gas and power bills, which are usually the biggest costs after rent.
• The lease. Rent, years left, renewal options and whether the landlord will agree to a new tenant.
• Your time. How many hours you spend collecting, cleaning, fixing machines and serving customers, and who covers for you.

Buyers will check these during due diligence, so it helps to gather them now. Our list of documents needed to sell a business is a good start.

Proving the sales

Cash is the hardest part of selling a coin laundry, because a buyer cannot see it the way they see card payments. Keep a log of every collection by date and machine, deposit all of it to the business bank account, and keep the reports from card readers and payment apps. Make sure the totals match your bank deposits, your sales tax returns and your tax returns.

Many buyers also compare your sales against your water and gas use over the same months, since a busy store uses more of both. Steady, matching numbers give a buyer and their lender confidence. If you cannot show a sale on paper, most buyers will not pay for it. If you take drop off or commercial work, keep a list of those customers, what they pay and whether there is any written agreement, and see telling customers and suppliers.

If you do the collections and repairs yourself, list your wage and any personal costs run through the business as add-backs with proof, and be honest about what it would cost to pay someone for that work.

Machines, repairs and the building

Make a list of every washer, dryer, change machine, card reader and vending machine with its make, size, year, repair history and whether it is owned outright, leased or financed. A buyer will price in machines that are close to replacement, so being open about age helps avoid a late price cut. If any equipment is leased or has a loan against it, note how it will be paid off or moved to the buyer; see selling a business with debt.

Keep records of hot water tank, boiler and venting service, plumbing and drain work, and any parts and service companies you use. A buyer will want to know how old the water heating is, who fixes machines when they break and how fast.

The lease and the location

A laundromat is costly to move, because the plumbing, drains, gas lines and venting are built into the space. That makes the lease a large part of the value. Check how long is left, the renewal options, any limits on use, who pays for water and sewer, and whether the landlord must approve a new tenant. Many buyers and lenders want enough term left to pay back the purchase. See your commercial lease when selling. If you own the building, see selling a business and the building.

The business licence

Most cities require a business licence, and the rules for a new owner vary. The City of Vancouver, for example, lets a licence be transferred to a new owner if the business stays the same type, with a transfer form signed by both the existing and new owners, and only once each calendar year. Other cities ask the new owner to apply for a fresh licence. Check with your city early and build the timing into your purchase agreement. Our guide to transferring contracts, licences and permits has a checklist.

Staff and customer information

Many laundromats run with an owner and one or two part time attendants. A buyer will want to know who works there, their pay and hours, and who is likely to stay. In British Columbia, section 97 of the Employment Standards Act says that when a business is sold, the employment of an employee is considered continuous, so a buyer who keeps your staff takes on their years of service. See what to tell employees.

Staff files, loyalty card accounts and drop off customer lists include personal information. In British Columbia, section 20 of the Personal Information Protection Act lets a business share personal information with a prospective buyer without consent, but only if it is needed to decide whether to go ahead and the buyer agrees to use it only for the deal. Share totals and summaries first, under a confidentiality agreement, and hand over full files at closing. Any prepaid balances on loyalty cards should be counted and dealt with in the agreement.

Tax on the sale

How the sale is taxed depends on whether you sell assets or shares and how the price is split between goodwill and equipment. See asset sale vs share sale, goodwill when selling and taxes when selling a business.

When a registered buyer acquires all or substantially all of what is needed to carry on the business, the section 167 election on Form GST44 can often remove GST/HST on the sale. In British Columbia, PST generally applies to taxable goods in the sale such as washers, dryers, change machines and furniture, but not to goodwill, and the Province says a buyer should get a PST clearance certificate before buying a business. See GST and PST when selling.

A simple worked example

These numbers are made up and rounded for illustration only. Your own deal, timing and tax will differ.

Questions to take to your lawyer and accountant

• Should this be an asset sale or a share sale?
• How should leased or financed machines be paid off or moved to the buyer?
• Will the landlord consent to the assignment, and is enough term left?
• How does the business licence move to the buyer in our city?
• How should we split the price between goodwill and equipment?
• Can we use the section 167 election, and how does PST apply to the machines?

For more, read what your lawyer and accountant do. Running a cleaning service instead? See selling a cleaning business in Canada. Own a car wash? See selling a car wash in Canada. This guide is general information, not legal or tax advice for your situation. Questions about listing with us go to hello@sellmybusinessdirect.com.