Should You Build a New Store or Buy an Existing One?
After much time thinking about it, you’ve decided that 2021 will finally be your dream year – your time to become an independent owner of a vended laundry business. The question then becomes should you buy an existing laundromat, a turnkey or franchise operation, or build a brand new store?
A long time ago, I was staring at this very question when considering opening my first laundromat. At the time, I was a district sales manager for a large insurance firm, and I was convinced I could build and operate a laundry as a side business and earn some extra cash while continuing to sell insurance and manage a crew at the same time.
For the veteran operators out there that may sound familiar.
Many of us in this industry have done just that, as we all know that a vended laundry is perfectly suited to be successfully operated as an unattended, partially attended or fully attended business. More important is the fact that clean clothes are a necessity of life, so laundromats will always be considered “essential” businesses, thus making them highly recession-resistant, even in the worst of times.
Once you’re ready to take the plunge, the real decision for you to make will be whether you want to design and build a shiny, new, state-of-the-art facility and grow your laundry business from scratch, or purchase an established laundromat with the security of already-existing cash flow. Both of these options present their own distinct set of challenges.
Another concern is whether or not you can effectively run a busy laundromat while working a full-time job. Or will you, at some point, have to choose one or the other? Personally, I left my day job shortly after opening my first store, and within 36 months, I owned three laundromats. Thirty-four years and seven laundries later, I never looked back.
As you can imagine, there are several major differences between building a new store as opposed to buying an existing one, starting with the actual site itself. When looking to build a new vended laundry, you must first be certain that it’s an allowable use by the landlord, the shopping center and the local municipality – and also that there are no water/sewer issues with which to contend. An existing store purchase typically comes with no such concerns.
However, you must be mindful of the fact that – when you find a potential site for a new laundromat – the idea is not to try to “create” new laundry customers in an isolated area, but instead to be situated in a location where you can draw people who are already doing their laundry at other stores nearby and make them your own customers.
A comprehensive demographic report will be a crucial tool to help determine the viability of the marketplace you’re considering. Another key component of your market research is to fully check out all of the other laundromats in the area. Look at the square footage, the age of the building, the condition of the facility, the age and condition of the laundry equipment, whether the business is unattended or fully staffed, and if other laundry services such as wash-dry-fold or drop-off drycleaning are offered.
The next topic to consider is the lease, assuming you’re not buying the building or the entire shopping center in the process. A new store will require a new lease, typically drawn up by the landlord. An established store most often comes with an existing lease, which you will be inheriting from the current store owner in the form of a landlord’s assignment with the purchase of the laundry business.
New-store terms can be negotiated from beginning to end, while an existing lease will have limited room for any changes. Some landlords may take the position that the lease “is what it is,” with however many years left, and expect you, as the new owner, to live with it until it’s time to renew.
Of course, this stance could put you in a tough spot for a couple of reasons: (1) if you’ve built a strong business and wish to sell it a few years later, the short time left on the lease will become a huge liability; and (2) when you are ready to renew at the end of the lease, you will have little to no negotiating leverage. (After all, it’s difficult to threaten that you’ll just pick up and move your laundromat somewhere else). Fortunately, most landlords will be much easier to work with and likely will be willing to extend the length of the lease – perhaps with a little bump in the rent.
No doubt, another obvious difference between buying an existing store and building new lies in the amount of construction or refurbishing capital that will be needed in either case. Building out a new store from scratch will require a building permit, as well as perhaps all new and larger gas, electric and water/sewer installations be brought into the space. By contrast, an existing store will almost always feature adequate utility service so that all you have to do is move in, add some cosmetic improvements and continue operating the business as before.
With that said, there are existing laundromats in good locations that are older and in much need of extensive refurbishing – to the point where you may have to gut the entire space down to the bare walls and build a whole new laundromat from the front entrance to the back exit, with all new fixtures, equipment and exterior signage.
Be careful in those types of scenarios, because you very likely will be installing additional washer capacity into the original store, and that could trigger a sewer impact issue, which could be extremely costly.
Some laundry entrepreneurs will tell you that the cost of building a new store is far greater than buying an existing one. In most cases, that’s absolutely true. However, the combined cost of purchasing, refurbishing and retooling an existing laundromat can easily be equal to or surpass the capital needed to build a new one in some cases and in some markets.
Nevertheless, most new entrepreneurs are still more comfortable looking at established stores with cash flow as a certainty, rather than starting a brand new business with a blank slate.
If you choose to purchase a new “turnkey” or franchised laundromat, everything will have already been done by a distributer, the independent builder or the franchisor. In this scenario, your job will simply be to pay for it all, move in and start building your laundry business.
The due diligence process is similar in some ways and very different in others. “Buyer beware” is the law of the land in almost all states, so purchasing an existing laundromat will require some serious scrutiny to be sure you are paying the right price for the store’s actual cash flow, as opposed to what the seller may be claiming. These numbers – more often than not – can be quite different, and it’s your job to uncover just how different and why.
After calculating the current owner’s net income, you must then prepare a pro forma for the business spanning at least five years, to see what your projected revenue and expenses will be after you take over the laundry business. Your cash flow, as I mentioned, will surely look different than the former owner’s, as you may have new debt, new rent increases and several other business expenses that he did not have.
This will determine your break-even point going forward, and it will help you to calculate how much cash on hand you will need in reserve to cover three to four months of overhead after taking possession of the business. You may need only some of it to cover deficits, but it is absolutely imperative that you have the money in the bank.
In the early stages of building a brand new laundromat business, your responsibility also will be to project what your monthly revenue, operating expenses and break-even point will be for this new enterprise. Clearly, a cash reserve is critical while you are ramping up your laundry venture.
Through your early marketing and advertising, you will be letting the community know a new neighborhood laundromat will be “Coming Soon!” This will help to ensure that your store’s “soft opening” will be as strong as possible. After all, your first mission will be to drive customers into your business in order to reach your goals as quickly as possible. Depending on the reception your laundromat receives from the community during your soft opening period, you then can decide whether or not a formal grand opening event is required.
In either case, if there is going to be new equipment financing in a new store or a retooling note in an existing one, some finance companies, who have a vested interest in your success, typically will allow interest-only payments for a period of time – perhaps six to 12 months – to help you get on your feet and get your business rolling. Be sure to mark your calendar with the full amount of principal and interest so that it’s no surprise and you will be prepared to pay it when it comes due.
An established store with proven revenue may not require as much promotion beyond hanging a big, new, great-looking sign on the front of the building; developing a social media presence; building a compelling website to let your customers and prospective customers know that the business is “Under New Management.”
The vended laundry industry has come a long way since the “mom-and-pop” days when I started out. Today, old and rundown “ZombieMats” – as my friend and current CLA Chairman Brian Grell calls them – are slowly being replaced by bright, clean, modern facilities that are staffed by professional attendants and provide a variety of laundry and textile-care services for their customers.
Whichever path you eventually take to enter this business – building a new store and buying an existing one – the challenges of owning and operating a laundromat in 2021 no doubt will be great. However, with all of today’s state-of-the-art technology at your fingertips, the additional customer services operators are now able to provide, and just a little bit of forethought and planning, the rewards for business-savvy laundry owners in this “new normal” can be even greater than ever.
