Managing a Coin Laundry Business

Laundromat Business Startup Costs

• How much money do I need to start a laundromat business?

  Starting a Laundromat business is very expensive. The cost of the new laundry equipment is very expensive, and the construction to provide all of the necessary utilities to operate the washers and dryers is expensive too. Typically it will require between $300-400,000 to build a 2000 square foot Laundromat. This breaks down roughly to $150-200,000 for construction and $250-$500,000 for commercial laundry equipment and ancillary equipment (water heater, bill changers, laundry card system, folding tables & seating, vending machines, laundry scale, and laundry carts.) Starting a laundromat and owning a coin laundry business is very expensive and is not for everyone. However, those who can afford the high initial entry cost can own a very steady and profitable business.
  

Profitability

• How much money can I make owning a Laundromat?

  Owning a coin laundry business can generate a very nice profit. Obviously the amount of money generated from the Laundromat will vary widely due to different demographics, different vend prices, different utility costs and different levels of competition. A 2000 sf Laundromat can generate between $40-120,000 in profit a year in profit, while building equity at a significant rate.

• Is there a ramp-up period before the revenue plateaus off?

  All Laundromats have a ramp-up period where the store is building its market share. Laundromats are in a mature market, so your share of the business will come at the expense of your competition (being apartment laundries, home laundries and other Laundromats). How quickly the Laundromat reaches its market share is dependent upon your location, street appeal, signage, marketing and Grand Opening promotions. The better the location,the better the street appeal and better the marketing of your Laundromat business; the faster the store will reach it maximum potential.

• What kind of rate of return (ROI) can I make?

  The typical formula for building a Laundromat is to pay for the construction and leasehold improvements with cash and finance the Laundry & Ancillary equipment. This allows you to "leverage" your cash and typical Laundromats can make between 25-90% ROI. Obviously the more money you put down the lower the Return on Investment, but the higher the net profit and cash in your pocket.

Financing a Coin Laundry Business

• How much of the total cost in building a Laundromat can be financed?

  Most borrowers will lend between 50-70% of the entire cost of building a Laundromat (construction, leasehold improvements, Laundry Equipment & Ancillary equipment). The amount of borrowing and the rate of interest are dependent upon your financial credit worthiness and your small business experience. The longer you have operated a small business (especially Laundromats) and the higher your credit score will yield the best interest rates and the greatest leverage. Real Estate acquisition is separate from the cost of building a Laundromat and is usually a more typical Real Estate transaction.

• What kinds of interest rates should we expect to pay?
  Please remember that Laundromats are not like a home mortgage. In the eyes of lenders, Laundromat businesses are "venture capital" deals. Laundromats are a new business without any track record so lenders are going to look at any new business with reluctance and skepticism. HK Laundry has found the best lenders are the ones who are familiar and comfortable with the Laundromat industry. These lenders are the manufacturers or lenders who specialize in Laundromats. Typically you will be charged between 7 to 12% APR interest for a loan that will be 7-8 years in length. These may be fixed or variable interest rates and longer terms are available for bigger deals.
  
  
• Is it better to lease or finance the Laundry equipment?

  In the Laundry industry, leases are "capitalized leases" where the residual value at the end of the lease is typically $1.00. With leases most lenders will only have a 5 year term. Financing with a loan or note can go for a longer period of time, typically up to 7 years (even longer terms for higher transaction deals). With a loan the sales tax is paid up front at the time of purchase. With a lease you end up paying more in sales tax because you are paying sales tax on each lease payment. With a lease you are paying sales tax on the principle and interest of the deal.

New or Existing Coin Laundry Business

• Is it better to build new or buy an existing Laundromat?
  When starting a laundromat, it is important to understand the Pros & Cons of building new or  buying an existing Laundromat. The primary decider is your personal comfort level in building a new business from scratch rather than taking over an existing up and running business. Many people do not feel comfortable with new construction and building a business volume from nothing. For these people buying an existing Laundromat business is a great option for starting a laundromat. When you purchase an existing store you are buying the future earning power of this Laundromat. If the store is well maintained and in a stable market, then this is all you can expect to earn from this store. On the other hand if you have found a virgin market without any competition or you own the building or you just like building your store from scratch, then a new store is for you.
  
  
• What is the hardest part of getting a Laundromat?
  The hardest problem that limits most potential Laundromat owners isthe lack of initial funds - typically $100,000-$150,000 in liquid funds. The other problem is the lack of good locations. HK Laundry has been assisting customers begin Laundromat businesses since 1967 so all of the easy locations have been found and developed. That is not to say that good sites are no longer available, but that good Laundromat locations are just harder to find.
  
• What is the biggest mistake that most people perform when building a new Laundromat?

  The biggest problems with new Laundromat construction is that people usually under-estimate how long it takes to build a store and they under-estimate the amount of money required in reserve for un-anticipated problems or for working capital.

• What is the biggest mistake that people make when purchasing an existing Laundromat?

  With an existing Laundromat the biggest problem is determining the profitability of the store. Most Laundromat owners do not know how much profit is generated by their Laundromat. The selling price of the business is based on the profitability of the store. Laundromats are a cash business so there are no receipts to determine the revenue. In addition store owners may be paying the attendants and repair people in cash and understating the profitability. We need to determine how much money the store is making and then see if this is in line with what you are willing to pay.

Laundromat Location

• What characteristics make a good Laundromat location?

  The 3 characteristics of a good Laundromat location are:

  1. A heavily trafficked road with "good" street appeal,

  2. Convenience of easy in & easy out and plenty of parking, (strip center or drive up to front door parking is best),

  3. Large concentration of renters, condo owners and trailer parks (people who need Laundromats).

• What demographics do you look for in a good Laundromat location?

  Laundromat customers are typically renters, condo owners or live in trailer parks. Laundromat customers do not have access or availability to laundry equipment so they need to find a nearby coin laundry business. A good Laundromat location will have a good percentage of renters and also have low household income levels.

Personal Commitment

• Do I need to a strong mechanical aptitude to operate a Laundromat?

  No you do not need a strong mechanical ability to successful operate Laundromats. Many Laundromats are managed and operated by housewives and other non-mechanical inclined operators. Most of the repairs are simple, easily handled repairs. Even when the tasks require more mechanical abilities, many operators have found husbands, children or the local bus-boy to fix the laundry equipment. HK Laundry holds service schools every year to educate our customers on how to repair and maintain their coin laundry equipment.

• Can I support my family on the revenue from one Laundromat?

  I hear this often enough. I just received a "golden parachute" and I want to get in to the Laundromat business. What I usually find is the "golden parachute" is a nice chunk of change but only enough for maybe one Laundromat. Typically one good Laundromat is not going to replace a 6 figure income. Laundromats work best when the owner can keep their primary job (and income) and run their Laundromat business on the side. The ultimate Laundromat owner has multiple Laundromat locations and then operating their Laundromats becomes their main job.

• How much time will I need to spend operating a Laundromat?

  The typical 2000 sf Laundromat will require a minimum of 1-2 hours per day of the owner's time. Managing Laundromats means someone of responsibility needs to visit the Laundromat everyday and make sure that there is change in the bill changer, the hot water is hot and that the store is clean and everything is up and running. With the advent of the automated Laundromat with electric door locks so many aspects of operating a Laundromat is easily managed. Your Laundromat is only as complicated as you make it.

• Laundromats are very expensive to business. What are your thoughts of owning a Laundromat with a partner?

  Laundromats do have a very high entry price and most potential customers do not have the financial resources to do this on their own. The natural extension is to reach out for a partner. Partners are tough. Partners are like being married to someone. You have to communicate with your partner all the time. You may have a different vision for the business than your partner and your need to work that out. Partnership Laundromats should also have some type of card system that audits all of the cash transactions. You should also contact your attorney regarding termination clauses and life insurance for each partner.

Accounting

• What records does my accountant require for my Laundromat?

  Laundromats are a cash business and thus fall under the simpler "cash accounting" system. In actuality you will just bring your check book to your accountant along with copies of any equipment purchases that year.

• Are there any tax advantages in owning a Laundromat?

  There are several tax advantages to being a Laundromat business owner. The biggest advantage is you get to depreciate all of your equipment purchases. Because Laundry equipment is very expensive, you now have a big number to depreciate. There also maybe ADA tax credits and accelerated depreciation schedules available too. Please talk to your accountant before you consider any major purchases with Laundromats or coin laundry equipment.

Owning Multiple Laundromats

• How do multiple Laundromat owners achieve multi-store operations?

  To become a multi-Laundromat owner is relativity easy. The formula for acquiring several Laundromats is to purchase one Laundromat, bank all the profit from the first store and all while keeping your main job. This allows you to quickly build up enough money for store #2. After several years you now have the down payment for store #2. You build and start to manage two Laundromats and all the while maintaining your original job. Pretty soon you have enough money for a third Laundromat. At this point in time you either quit your original job or just manage the Laundromats or you hire a full time Laundromat Manager to maintain your stores.

Utilities

• What utilities are required to support a new Laundromat?

  Laundromats require a tremendous amount of utilities. The larger the store the more utilities are required. For a typical 2000 sf laundromat, you will need a 2" water line, and a minimum of a 4" drain line (6" would be preferable). The Laundromat must be connected to city sewers. A Laundromat will discharge thousands of gallons of water per day and you must have a sewer system that can handle this capacity. In addition you will also need 400 to 600 amps of 3 phase electricity and about 4 million Btu's of Natural or LP gas. Check with your local laundry equipment provider if you have these utilities available.

• How important is new modern Laundry equipment to the bottom line of a Laundromat?

  A Laundromat equipped with new modern state-of-the-art laundry equipment will have several advantages over a Laundromat with older, less efficient coin laundry equipment. The modern Laundromat will save up to 50-55% of the water & sewer costs. The modern Laundromat will save substantially on the electrical costs and the dryers will save up to 20% of your total gas costs. The new modern Laundry equipment is crowd-pleasers and will attract customers just because they are new and less likely to break-down. Customers will notice the high extraction power of the new washers and will shorten their time in the Laundromat. The new modern Laundry Equipment save money, attract and keep customers in your Laundromat. A Win-Win.