If Starting a Laundromat Business is on Your To-Do List for the New Year, Here’s Your Game Plan
2020 has a nice ring to it, doesn’t it?
It’s very symmetrical and pleasing to look at – and kinda fun to say, too. And, for some of you reading this, it may be a lucky number, because it likely could be the year you finally get into the laundromat business.
You’re a year older now, and perhaps you’re still in the same job you were in when we visited this topic last January in these very pages. It’s not so bad, you say. It’s just an itch that won’t go away. But going into business for yourself, calling your own shots and succeeding stupendously are still all yours… and it’s there for the taking.
That itch always seems to get stronger during the holidays, and by the time the first of the new year rolls around, you’re finally committed to scratching it.
It’s still a vibrant economy out there, perhaps the strongest in decades, and the irons are hot. There are loads of business investment choices available.
One approach is to throw caution to the wind, leave your current job and just go for it. You’ve been saving money for years and built a solid credit rating. This is your time… right now.
Of course, a more conservative scenario would be to keep doing what you’re doing and open a business that doesn’t require your full-time attention.
Either way, a vended laundry business should be at the top of your list of investment considerations. First things first, I don’t know how many times it has been said that the laundromat industry is about as close to recession-proof as it gets. Although it’s more accurately characterized as “recession-resistant,” as everyone knows, during good times and bad, everybody needs clean clothes.
If you’ve been doing your homework and comparing other retail businesses with a laundromat you already know many of the advantages of owning and operating one.
You know that you don’t have to be there all of the time for the business to run efficiently, thus enabling you to own more than one store. You know you can have employees or not, and you can choose to be open eight hours or 24 hours per day. You know you don’t have to keep any inventory, as all of the raw materials you need to provide your service to your customers is delivered through pipes and wires every day – and you don’t have to pay for them for a month.
The business name will be whatever you choose, and you will pay no franchise fees or monthly royalties. The labor used to complete the entire washing, drying, folding and bagging process is performed by your customers. And, best of all, you get paid immediately. Your job is to keep the “Open” sign on and the water running.
How’s that for an oversimplification? But it’s pretty accurate.
Aside from being one of the most flexible brick-and-mortar retail businesses, a vended laundry also affords a new investor, operating a well-managed store in a good location, a very attractive return on his or her investment. It’s not unusual for owners to recoup their entire capital investment and become “whole” in less than three years.
Although there are several ways of getting into the laundromat business, I’ll be discussing two methods here that are most frequently used by entrepreneurs these days.
One approach is to find a viable site on a city block or in a strip or shopping center with all municipal approvals and solid demographics, as well as a knowledgeable landlord on board, with a long-term lease to enable you to build a brand new store.
The second method is to buy an established vended laundry with existing customers and cash flow. There are many of them out there for sale. However, the due diligence needed for this entry is far different and, in my opinion, more complex than building a new store.
Over the years, many first-time investors I’ve worked with – some having years of business experience and some very little – have told me they would be better off buying an existing laundromat with money already coming through the door. Given the right situation, I agree, but this is where it can get tricky and doing your due diligence becomes crucial.
Obviously, all startup businesses will require a personal cash commitment. New laundromats being built from scratch today can range in size from 1,200 square feet in smaller markets up to 10,000 square feet, servicing very densely populated older neighborhoods that can support such a large store.
You can wind up going into your pocket for $50,000 or $500,000. Clearly, the money required for all of your “soft costs,” “hard costs” and “cash-on-hand” to carry you through those critical first few months of operation after opening will be in proportion to the size and scope of the project.
Statistics support the fact that a major contributor to the early failure of a new business is being undercapitalized. If there is equipment financing involved, my guide has always been 40 percent – that’s what I recommend your portion of personal cash commitment should be for the entire project from site analysis through grand opening and beyond. After financing the washers, dryers and ancillary equipment, your cash should cover the complete buildout, incidentals and reserve money.
Some will argue that this may be more than necessary. Possibly. However, I always try to protect against surprises.
The finance companies – consisting of the industry’s equipment manufacturers, as well as firms specializing in laundromats – will require your net worth be perhaps two to three times the total loan amount, along with a long initial lease term to cover the length of the financing, many times up to 84 months.
For example, if your total project cost (including equipment, complete buildout and cash-on-hand after opening) is $400,000, you should have $160,000 of your own money available to bring to the table. Even with some bumps along the way, that should be enough to get you through from start to finish. If you have a strong grand opening and ramp up to “break-even” fairly rapidly, you may be able to save some of that reserve money and put it right back into your bank account.
But before drawing one line on a blueprint, it’s important to decide what kind of laundromat you want to be. You can choose to be a simple, 15- to 24-hour, unattended, self-service laundry with soap, beverage and snack vending machines and a television. Or, you can be a fully staffed operation, providing wash-dry-fold services with perhaps a pickup-and-delivery component.
If your distributor is involved in the design and building of your new store, which is quite common in the industry, you must communicate your vision to make certain you’re both on the same page.
Over the years, I’ve seen very nice stores built for new buyers, based on a typical self-service laundromat format, but without taking into account future services. For instance, there might be no space allocated in the plan for a proper front desk area with shelving and storage, in addition to the washers, dryers, tables and chairs.
Today’s leading distributors are building beautiful, state-of-the-art vended laundries, based on computerized floorplans and showing the proper configuration of washers and dryers for the particular market. This becomes the foundation for the complete buildout of your store, including all of the necessary utilities to be brought in. They also will help you formulate your total budget and pro forma for your vended laundry going forward.
Your capital expenditures will consist of everything from construction, marketing, advertising and grand opening costs, all the way through to your attorneys’ and accountants’ fees, which will include establishing your legal entity with all of the necessary licenses and permits. For liability purposes, your attorney most likely will advise you not to combine other businesses you may own with your vended laundry.
You will be depositing monies to your insurance company, along with rent and security deposits to your landlord. Typically, your utilities will require one or two months’ projected billing as a deposit, which can be sizeable for a laundry business. I’ve always gotten them to credit my account the full deposit after developing a year of a good payment history.
If you’re financing your equipment, the finance company will require a couple of months’ deposit in advance. However, many companies are allowing interest-only payments for a period of time to help you get through the first few months of operation. Obviously, you’ll want to do everything you can to ramp up your revenue to the point of “break-even” as rapidly as possible, knowing the combined principal and interest payment will be coming due soon.
During the construction phase, you will be making payouts for various items related to the leasehold improvements. Your finance company will be making periodic payments to the distributor along the way, and their final payment will be made per your instructions after all of the equipment is installed and tested. And, when the building inspector finally places that Certificate of Occupancy sign in your window, you’re in the laundry business.
I recommend a “soft” opening in the beginning to get all of the “bugs” out and to train your staff, if you’re operating an attended store. Long before your opening, you should implement your “Coming Soon!” marketing and advertising campaign to drive customers into your store from Day One. You may or may not need to hold a grand opening event, depending on the initial response from the neighborhood.
When buying an established vended laundry, the purchase arrangement may consist of money down with monthly payments to the seller for a period of time, or payment in full at the closing. Both methods may include refurbishing of the store and retooling. As a result, the capital needed sometimes can be as much as or more than building a brand new store.
Job One is to pull an updated demographics report to determine if the neighborhood might have gone through any changes in recent years.
Also, another absolute must is to visit the town’s building inspector to see if those low-income apartments nearby (with all of your customers in them) will be coming down soon and be replaced by condos. In addition, find out if there are any other building plans on the docket, such as a new laundromat in the shopping center across the street from you, which most likely would be the reason the store you’re looking at is for sale in the first place.
After you’ve completed your investigation, renegotiated the lease and you’re satisfied that all of the numbers line up, you’re ready to set a closing date. Or, in the case of building a new store, you’re ready to break ground.
Another year has gone by. So whichever method you may choose – building new or buying an existing store – remember that, more than fear, procrastination is the true enemy of success.
Is 2020 finally the year you take that leap and become a successful laundromat owner?