Buying a laundromat in Canada

Buying a laundromat means checking, with documents, how the takings come in and what comes with the store. This guide is a list of things to check, not advice on whether to buy, and it says nothing about what a laundromat earns or is worth. The seller should describe how customers pay, such as by coin, card or app, which washers and dryers are included, whether the store is attended or unattended, and whether it also runs drop-off service, vending or dry-cleaning. The checks below draw on BDC’s guidance for buyers, the Canada Revenue Agency (CRA), a lease guide from FedDev Ontario and one federal regulation. For price, read what a laundromat is worth.

Ask for the paperwork first

BDC’s due-diligence guidance says you and your accountant should be given records to review, including accountant-prepared year-end financial statements, tax returns and bank statements. It also asks whether the figures match the information the owner gives you and whether the tax returns match the financial statements. BDC adds that you may want to involve experts in business valuation, information technology, human resources and marketing. Ask the seller to put in writing how each kind of payment is recorded, then compare that explanation with the statements and the returns.

Match the takings to the records

The CRA describes records as all of your accounting and other financial information documents, and says to keep income, expense, motor vehicle and property records. Ask the seller to hand over the income and expense records behind the statements, not only the summaries. Ask who counts and banks the coins, how often, and where each deposit appears in the bank statements. If the bank deposits, the books and the returns do not agree, ask for each gap to be explained in writing before you go further.

Machines: condition, ownership and who is owed

BDC lists needed equipment repairs or investments among the things you and your accountant should look for. Ask for a list of every washer, dryer and payment system, with its age, service history and repair record. Ask whether each machine is owned outright, financed or leased, and for the contract if it is not owned. BDC says to make sure key contracts can be assigned to you if necessary, so ask whether any equipment contract can be. If the seller may have pledged the equipment to a lender, read what if the seller pledged the same equipment to two lenders, and ask your lawyer which searches apply where the store is.

Read the lease for operating costs and renewal

FedDev Ontario’s Small Business Services guide to business leases, which is Ontario guidance, explains that an escalation clause allows a landlord to raise the rent if the cost of maintaining or operating the property increases. Ask which costs the clause covers and how the landlord reports them. The same guide says a landlord has no legal obligation to offer you the same space once the lease expires, unless you have agreed on a renewal formula and have a clause that guarantees the space. Ask how many years remain, whether a renewal option exists, and what notice is needed to exercise it. Ask whether the landlord must consent to a new tenant, and ask your lawyer which lease rules apply in the province where the store is.

Set up your tax accounts

The CRA says that when you buy a business you may need a new business number, and points to its business registration pages to find out. Ask your accountant whether you do. The CRA also says that if you buy a business or part of one and acquire all or substantially all of the property that can reasonably be regarded as necessary to carry it on, you and the seller may be able to elect jointly, on Form GST44, to have no GST/HST payable on the sale. The CRA says the election cannot be used if the seller is a GST/HST registrant and you are not, and that GST/HST still applies to some supplies, such as a taxable service made by the seller or property supplied by lease or licence. Ask whether that election fits your deal. If the store has employees, the CRA points buyers to its payroll pages for payroll accounts.

If the business also dry-cleans

Part 1 of the federal Tetrachloroethylene (Use in Dry Cleaning and Reporting Requirements) Regulations applies to the use of tetrachloroethylene for the dry cleaning of textile and apparel goods, rugs, furs, leathers and other similar articles, except in the course of their manufacture, so ask which solvent any dry-cleaning machine on site uses. Several of its duties fall on the owner or operator of a dry-cleaning machine; ask your lawyer whether that would be you after closing. Section 5 bars using tetrachloroethylene for dry cleaning unless the machine meets the conditions listed there, including an integral tetrachloroethylene-water separator, and the facility has the listed containment and drain plugs. Section 7 bars its use in a self-service dry-cleaning machine. Section 9 requires the owner or operator to have all residue transported to a waste management facility no less than once every 12 months. Ask for the machine’s specifications and the transport records.

Questions for the seller

These come after the document checks above. Put the answers in writing and keep them with your notes for the lawyer.

• How is each kind of payment recorded, and who handles the cash from collection to deposit?
• Which machines are owned, financed or leased, and what repairs are due?
• Does the store also offer drop-off service, vending or dry-cleaning, and is anyone on site?
• What does the lease say about operating costs, renewal and a change of tenant?
• Which municipal licences and water or sewer rules apply here, and do any licences transfer?

Municipal business licences and water and sewer rules are outside the sources used here. Ask your lawyer or the issuing office what applies to this address.