Owners Discuss the Current State of Their Laundry Operations, While Sharing the Specific Indicators They Use to Gauge Success
The small-business half of the economy seems to have clawed its way back to a somewhat normal level of economic activity.
According to the National Federation of Independent Business, the group’s Index of Small Business Optimism finally reached its 42-year average in 2015, taking years to regain its footing after the official end of the Great Recession in June 2009.
“The recovery of the small-business sector didn’t follow the usual pattern – an early surge in optimism, hiring and spending, tapering over the expansion toward the average,” said NFIB Chief Economist William Dunkelberg in Forbes magazine. “There was no surge this time, just plodding, sometimes erratic, improvement.”
Of course, population growth provides fundamental support for growth in the small-business sector. With 3 million additions each year, the demand for services grows and this demand is, to a large degree, met by small businesses, according to Dunkelberg.
However, if history is an indication, the United States seems to face an economic crisis every 10 years or so. And the results are always pretty much the same – high unemployment, low levels of bank lending or even near-bank collapse, and a slow-down in economic growth.
Therefore, as a small-business owner, it’s critical to develop a strong understanding of the economy, as well as the specific factors shaping your own personal economic landscape. Paying attention to economic and business indicators can at least give you an idea of where the economy is going – as well as where your laundry business is headed.
6 Ways to Track Overall Economic Health
As a business operator, you can – and should – find out for yourself how the economy in general is faring by keeping tabs on the following:
1. GDP Growth
The economy is measured by Gross Domestic Product (GDP), which is the dollar value of everything produced in the last year. The most important indicator is GDP growth, which compares the current quarter with the previous one. If the economy is healthy, GDP growth will be between 2 percent and 3 percent. Here’s what it means otherwise:
• Above 3 percent – the economy could be overheating
• Below 2 percent – the economy is in danger of slowing down too much
• Below 0 – it’s probably in a recession.
2. Jobs
You may have heard of the Non-Farm Payroll Report. In it, the Bureau of Labor Statistics surveys how many workers businesses added to their payroll each month. They don’t count farm workers, because farming is extremely seasonal. A healthy economy, on average, will create 150,000 jobs. Companies will only add workers when they have enough demand to keep them busy.
Manufacturing jobs are an especially important indicator. The 12 million Americans who work in manufacturing earn an average of $77,060 (including benefits). When manufacturers start laying them off, it means the economy will be heading into a downslide.
The unemployment rate is also reported, but that’s actually a lagging indicator, so it isn’t as useful of a statistic. Companies typically wait until a recession is well underway before laying off workers. It also takes a while to reduce the unemployment number, even after hundreds of thousands of new jobs are being created.
3. Durable Goods
Durable goods are machinery, equipment and raw materials that businesses use in their operations. Think washers and dryers, as well as tanks and airplanes. In fact, commercial planes are the largest component of the durable goods category. To be considered a durable good, the equipment must last at least three years. They are expensive, so businesses put off buying them until they really need them. As a result, they are a great indicator of economic health. Businesses only buy them when they feel confident about the future.
4. Interest Rates
Interest rates control how expensive it is to borrow for both businesses and consumers. When interest rates are low, you can borrow more cheaply and buy a bigger house, a nicer car and more furniture. Businesses will borrow more to expand their companies, buy equipment and hire more employees. The opposite happens if interest rates rise.
The most important rate is the Fed funds rate because adjustable-rate loans – like credit cards – are based on this rate. The second-most important rate is the yield on 10-year Treasury notes, which underlies fixed-rate loans.
5. Building Permits
Building permits for construction of new housing are usually issued nine months before a house is built and put up for sale. If permits drop, it means builders don’t have the confidence in future demand, and that’s a sign economic growth is weak. When permit rates rise, it means the opposite – builders believe demand will be strong, and that’s a good sign for the economy.
6. Stock Market
The stock market tells you what investors think the economy will do. It also reflects corporate earnings and profitability. Although businesses can manipulate earnings to make them look better, in the long run they reflect demand and the health of the economy. The three most important stock market indices are the Dow Jones, the S&P 500 and the NASDAQ.
Targeting the ‘Laundry Economy’
Going beyond these general economic indicators, the Coin Laundry Association has commissioned economist Alan Beaulieu and his company, ITR Economics, to provide the association and its members with quarterly economic reports on where the self-service laundry industry is within the current business cycle and how that relates to the overall U.S. economy. Also included in these reports are management objectives specific to the laundry industry.
ITR’s report on the first quarter of 2016 offered the following for the vended laundry owners:
Better news is coming from the consumer side of the U.S. economy, which is supporting growth in U.S. real GDP. Adjusting retail sales (excluding gas stations) for inflation, 2015 had the highest rate of growth since 2004. Further, U.S. personal savings as a percentage of disposable personal income increased from an average of 4.8 percent in 2014 to an average of 5.2 percent in 2015. This suggests that consumers are able to maintain their current level of spending without jeopardizing future spending. We expect U.S. real GDP to expand over at least the next three years because of the strong consumer fundamentals.
Some other interesting stats from the most recent quarterly report include:
• U.S. housing starts increased 9.2 percent in the last 12 months to 1.1 million units. This is the highest level in more than seven years. Annual starts are expected to increase through mid-2018 and support higher levels of demand for self-service laundries.
• Consumer expectations rose 10 percent in the last 12 months from the year-ago level. This indicates that consumers are more optimistic than the same time last year, but recent trends signal that the consumer is beginning to have doubts. This could lead to consumers choosing laundromats over buying their own washers and dryers in 2016.
• U.S. total personal consumption expenditure increased 3.4 percent in the 12 months ending in December. Annual expenditures are still rising, just at a slower rate than in 2015. Growth is supported by high levels of personal disposable income and increased real wages. This suggests consumers will be able to afford more frequent use of laundry facilities.
• U.S. multi-unit housing starts increased 9.9 percent in the 12 months ending in January. Starts are expected to avoid recession through 2018. Laundry owners should look to market to new and old apartment buildings in multi-unit complexes to gain market share in 2016, according to the ITR report.
• Non-defense capital goods new orders are contracting. This suggests that business-to-business activity is suffering. However, self-service laundries are tied more closely to consumer activity, which is in good shape for 2016. The report suggests that owners look to upgrade, repair or expand machinery capacity to handle increased volume in 2016.
• U.S. laundry and drycleaning expenditures totaled $12.5 billion in the 12 months ending in December. This is a 4.2 percent increase from the same time last year. Expenditures are expected to rise through mid-2018 before a mild decline sets in and expenditures will end 2018 1 percent above 2017. This marks the sixth consecutive month of acceleration
• U.S household appliance production increased 4.8 percent in the 12 months ending in January from the year-ago level. However, the rate of rise is slowing. Production over the last three months is signaling that slower growth will persist in the near future. As household appliances slow, the ITR report notes, this could signal that more people are willing to utilize laundry facilities.
Clearly, store values also offer valuable insight into the health of the vended laundry business.
“Values have been on a steady increase due to the cost of building new stores,” said John Vassiliades of J. Vassiliades & Co., a business broker based in the Chicago suburbs. “Some existing laundromats, located in the right areas, are valuable just for the infrastructure, if not for anything else. Values range from two to five times net cash flow. The actual multiple is based on many factors – such as location, lease, parking availability, age of equipment, competition and financial records.
“My business has picked up, since there are more people looking at buying their own business because they don’t want to be worried about losing their jobs,” he continued. “However, the biggest challenge of this post-recession economy has been financing, due to the restrictions placed on small banks.
“In the next 12 months or so, I see continued increases in laundromat values and the demand for existing stores. I can also see, on the near horizon, the beginning of the new store market. Demand is there – and financing is coming along, but it’s still difficult.”
Out West, Brad Steinberg, co-president of PWS, is seeing “good” stores selling for between four and five times yearly net, before debt service.
“When I say ‘good’ laundromats, I mean those that have long-term, reasonable leases and somewhat new equipment,” he explained. “Leases are the biggest factor effecting store values. Many laundromats don’t have long-term leases, or they have leases with high rental rates or heavy increases. Unfortunately, the lack or a lease or a bad lease severely hampers the value of a store.
“Older equipment and desirability of a neighborhood also impact values,” Steinberg added. “The better the equipment and the better the area, the more valuable a store can become. Also, store values can increase if, for some reason, a laundromat is in an area where there is an ordinance against building new laundromats.
“In this post-recession economy, the good operators have really stood out. Some investors were able to buy rundown laundromats very cheaply, remodeled these stores and have seen success. We see the continued proliferation of large, fully attended stores. The growth of these types of stores has increased simply because they have proven to be successful.”
What Laundry Owners Are Saying
Of course, with laundromats being such localized, market-by-market business ventures, the only way to truly gauge the economic recovery is to hear from the entrepreneurs who on the front lines. So, as we head toward the midpoint of 2016, we asked a number of laundry operators how their businesses are doing, as well as what laundry-specific indicators they use to take the temperature of their business operations:
Keith Griffin
Super Suds
Beebe, Ark.
I closely track my return on investment. I have 10 laundries, and I track each individual store for the amount of investment – and that can be money, time or management. That information helps me determine how and where I want to grow my business.
For instance, do I want to invest in three or four small stores in small towns? Or would I be better off to go to a larger market and build a 6,000-square-foot store, because time is money?
We always need to be conscientious of our percentages because – although a 10 percent return on your investment is not that large – it’s huge over a span of 12 to 15 years. So, I look at the ROI, whether that investment is actual money or time.
In addition, I’m constantly tracking our utilities. When you run a chain of 10 stores and if you can save two or three percentage points annually on utilities, that’s critical because it goes directly to my bottom line.
We also closely watch the cost of rent and review our P&L statement monthly.
As more of an intangible indicator, my friend and fellow store owner Kenny Wells in Texas has always said that you need eight cars in the parking lot – and I’ve kind of used that as a barometer for our success. If you have eight cars in your parking lot, you’re probably starting to do a lot of business.
Personally, my laundry business is better than it’s ever been. I attribute a lot of that to the fact that we run clean, well-lit stores in the right locations. However, another factor that’s helped more than anything is that we’re not seeing a tremendous amount of people enter our market.
When credit was really loose, it was easy to get in, but now lending has tightened up, which it probably should have, so we’re not seeing too many mom-and-pop operators getting into the laundry business.
There were a lot of big banks that got themselves into trouble. But, to fix all of this, I think the government made the regulations too tight for small-town lenders. It’s too difficult for small-business owners to borrow money.
In the end, I think the recession taught all of us some good lessons. We’re all more prepared as a whole to handle a downturn than we were prior to 2007.
With that said, I think business will remain strong. I think we’ll always have a really solid core business. And I predict that we’ll see more of the larger operations, whether that means the size of the stores or the number of stores.
Also, I see a lot of new faces running the larger operations. It’s not that the single-store, mom-and-pop business is gone; however, for people to make the money they want to make to maintain the lifestyle they want to live, most operators need to have multiple stores. I think we’ll continue to see larger equipment and larger stores offering that “mall experience.”
Al Mollitor
Cobb Corner Wash & Dry
Canton, Mass.
I have only one store. Why my volume varies from week to week is always a mystery, but my running average is pretty steady.
I can’t say that the overall economy had a huge effect on the volume of my business. The factors that have had a beneficial effect are low inflation – because my rent is tied to the Consumer Price Index – and low natural gas prices.
Although it wasn’t strictly related to the economy, the best decision I’ve made in the past several years was to buy a new energy-efficient water heating system and new washers.
I predict that the next 12 months should be steady as she goes, although my payroll continues to rise as the minimum wage increases.
Paul Spangenberg
Speed Clean Laundry
Antioch, Calif.
I look at my gross sales every day, for both my machines and my wash-dry-fold orders. In addition, I track my Facebook “likes” and my reviews on Google and Facebook – as well as referring to in-person customer comments, what local online groups as saying about the business and employee feedback to keep us on the right track.
We’ve only been open for about nine months and, although we’ve sort of plateaued financially, we are grossing very well, compared to other neighboring laundries. We’re seeing that customers are willing to pay for quality, as we’re not the cheapest; in fact, we’re the most expensive in the market, with regard to some of our machines’ vend prices, as well as our wash-dry-fold rates. However, we’re also fully attended, which is reflected in our prices, as well as our customer care, store cleanliness and online reviews.
Since California voted to increase its minimum wage, I think we’re going to see higher vend prices to help pay for it. We’re also going to continue to see larger machines and more of them, as well as more credit card sales for those operators not afraid to deal with the hassle of more paperwork. What’s more, I think going forward we’ll see more wash-dry-fold customers using their phones to order laundry pickup and delivery.
Cathy Neilley
Spin Doctor Laundromat
Hamilton, N.J.
To track my business, I review year-over-year wash-dry-fold revenue, along with year-over-year self-service washer and dryer revenue. I also pay close attention to any customer feedback we might receive.
My laundry business continues to grow between 5 percent and 10 percent annually; however, the effort to keep it at such as high growth level requires a lot of effort. Fortunately, several new businesses are opening up nearby, so there is additional traffic in and around the mall in which I’m located.
A major challenge has been finding part-time workers. With the economy improving, many of them have been able to land full-time jobs elsewhere.
I predict customers using more online touch-points, including phone apps, in the future. My reasoning for this is based on customer requests over the past few years to add money to their laundry cards or to request pickups.
Henry Walter
Whale of a Wash
Inwood, W.V.
I track my systemic revenue by location year-over-year, the ratio of utilities to revenue at each laundry location and the contribution to the margin by location.
I also listen carefully to my service personnel for both positive and negative comments from our customers. The quantity of refunds is a measure of our success.
I’ve been fortunate to experience 22 years of uninterrupted higher combined – systemic and organic – growth. I try to open or acquire a new store every two years, and I’ve closed only two laundries since 1993.
It has been and will continue to be a struggle to keep up with utility rate increases. However, we are experiencing some solid growth in population in our area, which will be a steady, positive influence on the self-service laundry business here.
As to the future, technological improvements are coming fast and are difficult to keep up with – payment systems most likely will be the sector to watch most closely.
Michael J. Carter
Tavoir Ventures LLC
Lakeland, Fla.
I own 14 stores. Each laundry has a separate P&L statement, where sales and cost are accounted for monthly. We track the water consumption twice a week via water meter readings at the time of collection. My bottom line is the amount of profit we show per store.
Typically, in Florida, our winter season has higher volume, due to “snowbirds” and migrant workers coming to our state. Volume impacts profitability a great deal. I also conduct a month-to-month comparison of individual stores compared to the previous year.
Since I have only been in this business since 2011, I can’t relate to the tougher times during 2007 and 2008. In our case, we’ve seen sales increase from 30 percent to 50 percent over the sales of the previous owners from whom I purchased the stores.
I believe our sales increases are due to taking care of our customers, along with an excellent refund policy, cleaning up the existing stores we purchased and adding new equipment. We have tended to purchase larger 80-, 90- and 100-pound washers, and we believe that has boosted sales. In a word, business has been excellent for us.
I believe self-service laundries are the only way to go. With wage increases and government regulations, we’ve chosen to cut down on employees. Of my 14 stores, I have just one attendant who works the first shift at one of my stores; she also processes wash-dry-folder orders, which helps pay for part of her wages.
I believe the future challenges for the laundry industry will center on liability and, in turn, liability insurance. As we all know, it’s a litigious culture, so protecting your business from lawsuits is a major challenge. The other challenges are local ordinances and impact fees, as well as utility costs.
Fortunately, Florida is a state where the population is growing at a significant rate, so I see our business continuing to do well as long as we do our jobs as operators.
Mark Murray
Adrian Image Center
Adrian, Mich.
Generally, we measure our performance by looking at our increase in business volume, versus our revenue increases year to year. We also study anecdotal evidence, such as feedback from our website and customers in our store. In addition, we look at our other businesses’ comparative volumes; this includes a fitness center, a carwash, a drycleaners and a tanning salon.
Lastly, I judge my laundry based on what I hear from other operators, as well as by reviewing a 25-year spreadsheet of volume versus improvements made to the store, such new equipment, remodeling projects and so on.
For example, seven years ago, we remodeled the store, replacing most of the equipment, becoming a card-operated business and embracing full-cycle dryer pricing. Since then, we’ve noticed a steady increase in volume. In fact, we’ve been pleasantly surprised by our small but steady growth during and after the most recent recession.
We are in a small market. All in all, we see a bright future for our store and the industry, with no major impediments ahead.
Stephen Bean
Woodward Coin Laundry
Royal Oak, Mich.
We track household visits; the amount spent per household per visit; the amount of household visits per day, per week and per month; and, of course, income per day, per week and per month. We also look at customer comments about our laundry, our television advertising and the activity surrounding our loyalty programs.
Based on these tangible and intangible indicators, business seems to be growing. Also, in this post-recession economy, some competing laundries in our trade area have closed, driving customers to our store. In addition, during the economic downturn, some customers weren’t able to purchase or repair home laundry equipment and, thus, are now using our laundry.
In the near future, I see our self-service laundry business either staying the same or perhaps growing on a reasonable linear basis. Based on the metrics I track, I have no reason to expect otherwise.
Bruce Walker
Wash It Kwik
Denton, Texas
I look at my turns per day, net income and payroll/gross. Month to month, our number is so small that a few hundred dollars can make a huge difference, so looking at some of the figures quarterly or yearly is a better indicator of how we’re really doing.
Also, how my team is getting along can make or break it for me. The health of my organization is the key to things going smoothly and to our overall success. If I ever see myself spending too much time with issues surrounding a certain team member, a new hire is imminent. I feel like we can accomplish anything when I have a good strong team.
Looking to the future, our pickup and delivery business is really taking off. In fact, I think it will exceed our drop-off business within the next 12 to 18 months.
Omar Bou-Matar
Crystal Clear Wash
Grand Junction, Colo.
I regularly keep track of weekly collections, as compared to previous years. I also track my turns on a monthly basis. As far as intangible indicators, I look at customer feedback, as well as their comments and smiles.
My laundromat is doing very well. We recently finished up a record February and a very strong March. A lot of that has to do with the fact that my facility also features a car wash – and it’s been a very busy car wash season. The synergy of both businesses being under the same roof really helps us stand out and succeed.
One of the major highlights of the post-recession economy has been being able to increase our vend prices and to feel justified about it.
Albert Bingenheimer
Neighborhood Laundromat
Richmond, Va.
To gauge our success, I look at the money in the coin boxes for starters. However, I also track the number of repeat customers; utility costs, based on our gross revenue that month; equipment maintenance costs; and customer refunds issued, along with the reasons for those refunds.
In addition, I review customer comments and closely follow the activity on Yelp, Facebook and Google+ for “likes” and reviews.
Based in these criteria, business is doing well. We continue to see increased revenue, positive customer “likes” and reviews, and our expenses are less than revenue.
For us, the post-recession economy has been highlighted by an increase in the rental market. Many of the Millennials are now moving out of their parents’ houses and into the rental market – and they need to wash clothes.
By contrast, one of the challenges has been the cost of investment. I want to have best equipment and be a price leader. It takes a lot of money to retool, but the increased traffic is worth it.
I predict we’ll continue to see older stores deteriorate, with more laundry customers flocking to clean, well-lit stores. I also foresee increased investment in new payment systems to offer customers payment options.
John Henderson
Liberty Laundry
Tulsa, Okla.
Cash flow is king, and profit makes me sing. Seriously, money is the ultimate scorecard, isn’t it? To stay on top of things, I regularly monitor daily cash flows, P&L statements and bank balances.
Profit is the tangible evidence of success, but what drives that success and creates that profit? I think these are some of the intangibles, posed here as questions: Are customers impressed by the cleanliness of your store and the friendliness of your attendants? Do people often go out of their way to tell you how nice they think your laundromat is? What do your online reviews look like? Are your attendants glad they work for you? What is your employee turnover rate? Is your spouse happy you started this business? Do you derive a deeper satisfaction from the business than simply profit? Do your customers and employees know you care about them?
I think creating a successful business is about more than dollars and cents. It’s about serving others.
There is always room for improvement, but business at Liberty Laundry has never been better. Revenue for the company was up 16 percent in 2015. We have had some issues with employee turnover during the past year and a half, and we are working to improve our hiring practices. We are also focusing on paying off debt.
Opening our third store was the major highlight for us in the post-recession economy. Given that interest rates have remained ridiculously low and I have a very supportive local bank that helped me secure an SBA 504 loan for the project, opening the new location made a lot of sense.
Oklahoma was not as severely impacted by the recession as many other areas of the country, although our laundromat’s revenue did suffer a slight decline in 2010, offset by the fact that we opened our second store that year. Oklahoma is currently being affected by low oil prices, which is having a significant impact on the economy and government revenues. Talk is afloat of legislation to tax services to boost those revenues, so we are watching that closely. However, the low oil prices have not impacted our business directly, as far as I can tell.
As for the near future, it should be all hands on deck! Man the frontloaders! Full speed ahead! With three stores now in place, a growing brand presence, a steadily growing customer base and a great staff, I have every confidence that the next 12 months are going to be great for us.
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