Wednesday, February 14, 2007

How Much Capital Will I Need to Start a Laundromat?

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.

49 comments:

Anonymous said...

What about permits etc? Does the contractor handle that stuff?

Laundry Capitalist $$$ said...

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.

kingpin said...

What are the differences between swipe card machinery versus coin as far as price goes???

Laundry Capitalist $$$ said...

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.

Anonymous said...

If you plan on buying an existing landromat is the start up amount the same?

Laundry Capitalist $$$ said...

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.

Anonymous said...

How do I figure out my ROI? Could you explain the formula you use to figure out your ROI?

Laundry Capitalist $$$ said...

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.

Anonymous said...

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.

Laundry Capitalist $$$ said...

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.

Dr. Pepper said...

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?

Laundry Capitalist $$$ said...

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

Dr. Pepper said...

Thanks very much for your comments

Laundry Capitalist $$$ said...

No prob - please come back and contribute - let us know what you find. Good Luck

Anonymous said...

How would you decide the ratio of washers to dryers and also the heavy load washers to single load washers?

Anonymous said...

How would you decide the ratio between washers and dryers and also heavyload and single load washers?

Laundry Capitalist $$$ said...

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

Anonymous said...

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.

Laundry Capitalist $$$ said...

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)

Anonymous said...

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

Laundry Capitalist $$$ said...

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.

Anonymous said...

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?

Laundry Capitalist $$$ said...

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!

Anonymous said...

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

Laundry Capitalist $$$ said...

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.

Anonymous said...

Being a rookie at this, Im in my lower 20's and ive been thinkng long and hard about owning a laundromat. How much of my own money do I invest starting out and how do I go about asking the banks for a loan ?

Anonymous said...

Has anyone used this guy as a consultant? Any reviews? http://laundromatadvisor.com/Default.aspx

Laundry Capitalist $$$ said...

People have asked before - but don't know - let us know what you find on the 'advisor'.

'Rookie' - see previous posts & comments - take your time and do your homework.

Anonymous said...

Hi Laundry Capitalist,

How passive really is the passive income from a laundromat? Does one have to spend a lot of time either fixing the machines or finding a good repairman? Do you recommend hiring a cleaning service, etc? Is a smaller laundromat less trouble? Thanks for your tips. This is a great blog!

Laundry Capitalist $$$ said...

I probably have over-glorified the 'passivity' of the income on this blog occasionally (b/c I like the biz) as there is work to be done - you are running a business after all; but I would still classify it as more towards the passive income stream type of business that can give you something more valuable than money - time.

MyViScience said...

What are your thoughts regarding taking on an investor for start up costs?

HayFromTheBay said...

LC,

Awesome blog!
You've answered so much for me without evening having to ask!

Laundry Capitalist $$$ said...

Thanks Baydude

Laundry Capitalist $$$ said...

myviscience - unless it's a multi-millionaire uncle throwing you tit money - I wouldn't do it

Anonymous said...

busi44-im about to purchased a existing laundromat and it has a1400sq ft, 15 speed queen top loader 17lbs,5 maytag front loaders 25lbs,3 speed queen front loaders 35lbs,7speed queen single dryers 30lbs,14maytag stack dryers,new installed 30lbs and some other equipment they asking 139,000.what do you think is the reasonable prices??

Anonymous said...

This is a great blog! Laundry capitalist, what are things you look for when selecting a location to open a new laundramat? Also what factors do you consider when selecting the size of the location? (# of machines, sq footage, etc.)
Thanks
Trevor

Anonymous said...

Hey there LC. I absolutely love your blog, Im just about to graduate college and start working on building up some capital to start buying out/starting my own laundromats. But one difference I see in approach is that I am actually going to go for urban areas because some of the places Ive looked at are run down establishments but their customer base is huge So I thought it would be a good place to buy out and turn around. I know you like going for the big city approach but would mine have potential?

Laundry Capitalist $$$ said...

search "pricing" on the blog and those articles will come up

Laundry Capitalist $$$ said...

blog on finding locations and research - http://laundrycapitalist.blogspot.com/2007/02/finding-right-location-for-your.html

Laundry Capitalist $$$ said...

by 'urban' you mean city or large town and that IS what I like to go after - I didn't mean to make it sound like you have to put it in a prime time city only like downtown Chicago or NYC - the main thing is that you have the demos you want - with a good population with a high percentage of renters - good luck!

Anonymous said...

Thank You this is a great blog! My husband and I live in a small town with great potential. The mats here are all worn and we think we can do the town justice to open a new one with an internet cafe twist. We are wanting to invest in some land and develope a village square. Within two of the units, we want to put a mat.Would you suggest this?

Laundry Capitalist $$$ said...

As I always say - do your homework and be careful. Let us know how things go.

Youlonda said...

Thanks so much this blog is very informative.

Mike Schwartz said...

Hi. First Thanks for your great information that helped me a lot.
my question is, How do i really know how much is a laundry worth? if the asking price is 150k and the owner says that this laundry nets a year 50k how can i find out if its true or not?

Anonymous said...

I bought an ESD card system and paid 70k !!!

Anonymous said...

I'm a student working on a start-up laundromat business plan for a college class. I was wondering if you could give any advice with completing the financial statements?!

Anonymous said...

Hello,

I want to start by saying thank so much for all of the helpful information you have gathered and shared to all. I myself am looking to rent a space, rehab and make it happen so your blog and all of your answers were of much help. It takes a very generous person to do so.

I must admit though you did throw me off with the tit money comment. LOLOLOLOL. Omymymy. Also, some of theses people that are asnwering these questions don't even need to think twice about opening this business because they can't even have the sense to READ. I mean come on people your asking questions that have already been discussed. DUUUH! >>>Yet you want to run a business? I wouldn't give them a loan that's for damn sure. lmao

Crys-

Thanks again for all of your wisdom.

ganadhipathi said...

hi i want to start laundromat in hyderabad(ap) , india , how much will be the capital cost . please give me the details
mail id : ganadhipathi.gok@gmail.com
Contact no : +91-9912020120

Anonymous said...

I'd suggest asking to see his tax returns for the business, Schedule C from his accountant.