The most asked question from beginners...
Before you have mentally made the plunge to go forward with any business - you need to run some numbers. My calculations will be for a medium/large store with about 75 total machines (Washers and Dryers) and about 2700 - 3000 sq. feet of store space.
In the laundry business you will have two major upfront costs. If you're launching a brand new location (or refurbishing an existing one for that matter) you will have Construction Costs. The Construction costs for a store this size will probably be around 100k - 200k. Our last venture was in a strip mall and was on the higher end of this range. The major pieces of these costs will include, electrical updates, plumbing and general carpentry. You should get a few contractors (to shop prices) and expect no matter what quote you get to end up about 20k higher based on unexpected code/inspector requirements. You should try to add limits to your contractors contract so they don't go overboard.
Another major cost will obviously be the machinery. You need to talk to many vendors and make sure your Representative is knowledgeable and very responsive. We fired a few companies before deciding on our company. The selection was largely due to the diligence of our Representative. An experienced and knowledgeable Rep can act as more a consultant working on your behalf rather than just as a salesman. Research the maintenance capabilities of your vendor as well as the Financing plans (interest rates etc.) they offer also. A brand new machine mix for the 75 machine range will be 200k - 250k. If you have good enough credit and financing the whole note of the machinery can be financed.
There are other start up fees also such as: incorporation, lawyer, lease negotiations and legal review, Security deposit for landlord etc. These are smaller fees compared to the bigger chunks detailed above, but you need capital for these also.
If you're buying your location for your laundromat (which is a whole other topic of discussion on the pluses and minuses) you will obviously have another large note to contend with. Having to not deal with a landlord is a great plus but we'll get into that later.
These are broad brush strokes and ballparks of start up costs for the size store illustrated above. I welcome feedback and more in depth discussion on any of the subjects above.
Wednesday, February 14, 2007
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25 comments:
What about permits etc? Does the contractor handle that stuff?
Yes your contractor should handle all permits for you and also be proactive about meeting with inspectors and getting approvals throughout the buildout process.
You will be responsible for your business licensing though and wrapping that up with signoffs from all inspectors. Check with city hall on what's needed before the project is over so you can get a jump on compiling the necessary paperwork.
What are the differences between swipe card machinery versus coin as far as price goes???
For the ranges I mentioned expect another 30k in price for the swipe card technology. For example if your quote is around 200k for coin machinery and you change to swipe card machinery the quote should be around 230k.
If you plan on buying an existing landromat is the start up amount the same?
That really depends on your plans with the space. It can be significantly more if you plan on rehabbing the unit and making it brand new throughout with updates. You will obviously have the purchase price as the first big expense. As this blog noted you will have to add the purchase price to what was referenced if you plan on rehabbing and buying all brand new machinery. The other question is, are your buying the building the MAT is located in? Add more for that. If the seller owns the building I would try to work that into the total purchase as well. It's much better without a landlord - trust me. Hopefully you can find a way to finance this and save working capital. You will also have to get ballpark operational costs, which the seller should provide (ie. monthly run rates for Rent, Gas, electric, water, employees, misc. expenses etc.) Do your homework though, Biz Brokers and Sellers are out for themselves obviously - so make sure the numbers add up. You need to follow your gut and do your homework. If an old MAT is a dump but still accomplishing good revenue and healthy cash flow that would satisfy you and your ROI - those are usually the ones that can grow slightly and would be worth the purchase. Be careful though - do your homework and follow your gut.
How do I figure out my ROI? Could you explain the formula you use to figure out your ROI?
ROI for me comes down to cash flow.
Official Definition: The cash receipts or net income from one or more assets for a given period, reckoned after taxes and other disbursements, and often used as a measure of corporate worth. After all is said and done at the end of the month you've paid your bills - what's left? This is cash flow and this is what you want. You will have to run the numbers for your personal deals, but work hard to study what you know will be there for expenses. If you're buying a place get the history of bills and revenue from the seller and study and re-study the information. Prepare to question them to the hilt on everything to get the information you need. If purchasing it will take a while to get back your initial investment but healthy cash flow will allow you to match that investment and beyond - this is what you want.
Being an entreprenuer takes balls and some faith. Alot of people think entereprenuers are giant thrill seekers, this isn't the case. Most seem to have ice in their veins because they've done so much homework and preparation on their next venture that they are very confident in their next move. I wish their was a silver bullet for you to prove that every venture will actually have an ROI but that's not the case. In the end it's up to you to examine every avenue of your deal to make sure it's something you feel confident about moving forward on.
Do you know of any companies that offer seed funding to start a laundromat? Most only offer to those already in business, or to people with enough collateral/previous experience. Any assistance would be appreciated.
Unless you have a nice stock pile of your own capital it will be tough to enter this business quite frankly. The only way I can think of where you would have a low initial investment would be buying from an existing owner who would handle the financing. Even in this case though, like a bank, they will want to look at your financial picture and credit history. If this isn't good they'll pass as well.
Being a newbie, I'm currently considering buying an established laundromat (the business only, with the option to buy the building at the end of the lease. How do I determine if the asking price is reasonable? And what questions do I need to ask the seller?
Buying the building after the lease is over (if it's more of the short term variety) is probably a good idea to make sure you want to stay in the business first. If you do end up owning the building it will be great down the road. Once the machines and building are paid off you have a double windfall of free cash flow.
Asking price is all dependent on the numbers the store is doing now. If it's a dump and doing well despite itself it could be a winner.
Typical questions are all about cash flow, look at their books and make sure the numbers add up (including all utility costs, employees, insurance etc.), are there other cash flow amounts that don't come from this hands off laundromat? (ie delivery stuff, do they rent U-Hauls in their parking lot - other non-related crapola I would disregard as revenue unless you're willing to pick up that business too), age of machinery and how many are currently working? (I would want them all currently in action), check out parking situation, do your homework on what the cities demographics are (check out my blog on that); and on and on and on. Do your homework and be prepared with everything you want to know. Good Luck
Thanks very much for your comments
No prob - please come back and contribute - let us know what you find. Good Luck
How would you decide the ratio of washers to dryers and also the heavy load washers to single load washers?
How would you decide the ratio between washers and dryers and also heavyload and single load washers?
most stores never have enough dryers - so let's say your store is mid size and holds about 26 washers you would need about 35 dryers and if your store is really cooking those will be fully used throughout the weekend - as far as layout push all your biggest machines to the front of the store - convenient for the customers and convenient to just use bigger more expensive machines - for single loads your vendor will probably push a few top-loaders on you - don't buy any - they're old fashioned make you the least amount of money, use the most water and energy and break more than any other machine - jump up a level to a smaller front loader instead - good luck
Thank you for your response. I'm just curious as to what the reason is to have so many dryers to washers? Also for a midsize laundromat what ratio would you recommend for larger capacity washers i.e. Double loaders or 35lb. Heavy duty machines for large comforters, rugs, etc.
it's not a one to one ratio - you'll see someone with one mid-size wash using 3 or 4 dryers afterwords - if you don't have enough dryers and can be a real bottleneck in your store - when you're trying to get them in and out quickly - also work with your sales consultant on the layout and ratio of machines in your store - they should include a complimentary layout plan of the store for you including what machines will go where - you want a good mix of various sizes - for example you might do ten 20#s - and 4 of each of (30s, 40s, & 60s)
First this is a great blog thank you. I am a woman in my 40's and I am thinking of buying a existing Laundromat.
Question: What is the first thing I should ask? also once I get the books from the business can my regular accountant review them and make a call as to if the business has a good cash flow or do i need a get a special accountant? if what would be that person title? Thank you
Your tax professional should help and have corporate tax experience - I'm sure they'll have a few sm. biz clients. Ask why they're selling and for the utility bills to start - but rake them over the coals - ask anything/everything you want to know. If what you're hearing or your gut send out red flags, move on.
Im a single mother. I was laid off a year ago and now work a job that barely pays my rent. I have great credit, but do have debt that is always paid on time. How easy would it be for me to find an existing laundromat with an owner that would let me make payments to them over a mutually decided amount of time?
Sorry to hear that - with financing the seller would want a full financial picture on you and even then, if any financing option is offered at all there's usually a substantial down payment - usually half tends to be the starting down payment from stores I've seen on Sale - most businesses for sale don't want to get into the financing game and want full payment and a clean, closed deal - but some sellers do offer financing - keep searching! Keep fighting!
Hi Laundromatcapitalist,
You have a wonderful blog here ... I read it often and find the content both practical and straight shooting.
I am going to look at a few New York City Mats that are represented by NEW YORK LAUNDROMAT EXCHANGE. In the past I was ripped off by brokers and shady sellers because I had no idea about how to value and evaluate the business I purchased and I did not have any trained professional fighting for me in the sale process.
So I have found this man who reps prospective buyers and charges a lawyers rate [he is also a lawyer] to perform a due diligence for any mat based on water analysis and other tests that compensate for the limitations of water analysis with fuel consumption analysis and in addition to other red flags to screen for.
http://laundromatadvisor.com/Default.aspx
... he advertises his services as essential to prevent a buyer from being ripped off because a 10% ommission in sales translates in to a 20-25% overpayment for the entire MAT BUSINESS [OUCH!] ... do you think I am doing the right thing to hire him if I find a mat i am interested in?
Also have you ever done business with New York Laundromat Exchange in a way that you provide a straight opinion on their character as brokers?
Thanks.
Dee
It's Laundry Capitalist but a rose by any other name ... ha ha!
Thanks for the information & interaction. Tales of woe like this are good reality checks for people thinking they can breeze into this business. You need to be careful - there are actually a small fraction that are winners in this business and unfortunately most of the stuff you see on sale has problems.
I don't know about either of the outfits you've mentioned. If you've talked to Mat Owners I would ask for local recommendations from them on vendors/consultants that can help and are trustworthy. Someone that will tell you the demographics are bad when they are. If you try one of these 'advisors' I would start with asking for a bunch of references, and then when you get those references on the phone ask them for another name of someone that's worked with the advisor as well.
Please come back and let us know how things worked out for you.
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