Brian Brunckhorst, creator of the Secrets of Buying and Owning Laundromats, offers insight about how to open a laundromat. He shares his experience laundromat financing, choosing the best coin-op laundry equipment, how to avoid overpaying for an existing laundry business, and much more. [25 min.]
To learn more about his laundry business book, click here.
Start off by giving us an overview of how laundromats and the self-service laundry business works.
It’s really quite a simple business. You have a storefront where there’s a lot of washing machines that can either be started from people putting in quarters, which is typically the way it’s done, or newer technology allows for people to put the money in and they get out this card that has some value on it, and then they can use the card to start the various machines. Basically the way the business works is the customers come in and they wash and dry their own clothes, and from an owner’s point of view, all they need to really do is maintain the store, make sure that its well-lit and all the equipment is working and nice and clean, and do some basic advertising to bring in people and let them know that they’re there. And of course, collect all the money.
How much does it cost for someone to start up a coin-op laundry?
Coin-op laundries can generate in income anywhere from losing money every month to making thousands, if not tens of thousands, of dollars of profit. Really, the value of the business is based upon a multiplier of how much income is generated by that business, so most coin laundries will sell as low as say, $50,000 to as much as over a million. If the business is well-run and has a good set of books, because it is an all cash business, many of them will qualify for SBA loans, or Small Business Association loans.
Should you start a coin laundry business from scratch or buy one that’s already in operation?
Well, that really depends upon your level of experience and expertise in running or owning a business. If you feel comfortable starting a business from scratch, you can do that. There are over 35,000 laundries throughout the United States. Most places that need a coin laundry, one already exists. Now that doesn’t mean that because of migration patterns and influxes of population, new areas aren’t available that maybe before didn’t need one and a new one can be created in those areas. It just means that in most cases, one already exists where they’re needed. What I always tell people who are brand new to the business is for your first store, it’s probably better for you to buy one that’s existing than to build one from scratch, because building a laundromat from scratch is a very detailed process. It’s not like opening up a clothing store where you wheel in some racks of clothes and you open your doors with a cash register and you’re in business. There are a lot of site improvements that need to be made in order for that business to work: upgrading the electrical systems, lease hold improvements. And it’s one of the more difficult businesses to actually build. You’ll need to hire an architect, and the list is very long as far as the things that need to be done. When you are opening one up from scratch, the other issue is that you don’t have a customer base. You’ll need to create one from existing stores or from apartments, where most of the customers come from, so you need to create a new customer base. Where if you were to buy a store that’s already in business, you’ve already got an existing customer base and you’re buying the cash flow, so you already have a known quantity and the risk associated with that is reduced.
It would seem that locating a laundromat in a neighborhood of million dollar homes may not be the best idea because presumably, most people would have their own laundry equipment. Talk about the type of demographics you’re looking for when choosing a location and where should you locate your laundromat for maximum profitability?
The best place to put a laundromat is really where your customers are going to be, and only about 5% of homeowners use a laundromat, and what they normally use it for is for washing big items like rugs or bedspreads and that sort of thing. Really, your customer base is renters, so you want your laundromat to be in a convenient part of town where the renters are. So if you have a laundromat in an area of town on a major street, very close to where there’s a lot of rental properties like apartment buildings, that is where you want to have the store. In an area of multi-million dollar homes or so, probably is not going to give you the right location for your target customers.
What are the best ways to finance a laundromat? Should you just walk into your local bank or credit union and essentially ask for a loan?
There’s a number of different ways to finance a laundromat. The first and most common one would be to ask a bank or to go through the Small Business Association, as long as the laundromat will qualify for that. And there are some guidelines that the Small Business Association uses to qualify a store. They like to see a business, any business, have at least a couple years track record, and they like to see the income increasing year after year. So that’s one source that you can do. Another source would be having the seller finance part of your purchase. It used to be not too long ago, that sellers almost always wanted to be paid for the business all cash. Who can blame them? But nowadays, with the financial market being a little tighter, it’s a little harder to qualify for loans, although you can still do it if you have good credit, sellers are realizing that, hey, if I want to sell my store, I need to be open to the possibility of carrying a note for a portion of the purchase price. I’ll give you an example: the last store that I purchased back in January of this year, I was able to negotiate with the seller to have him hold a note for 80% of the purchase price, so I put down 20% and he held back a note for 80% at 6% interest for 7 years. That’s not a bad deal. What was very nice about it was I didn’t have to really qualify for the loan. He just asked me for some very basic information about myself.
Can you keep your full-time job and run your laundromat part-time when you’re just getting started?
I think you can, it kind of depends. If you go and you buy a laundromat that’s already in business, when you first take over, you should expect to spend some time at the store while you get all the processes in place to have the store run the way you really want it to. Once those processes are in place, and when I say processes, it may mean hiring a staff to clean the store, teaching them how to clean it depending on the size of the store, but once you get that all in place, it shouldn’t take you more than five to ten hours a week of your time to run the store. In fact, when I got my first store, at the time I had been unemployed, I had just gotten laid off, so we bought our store and I didn’t have a job. Once I got those processes in place, I actually went back to work, back in the engineering field, testing computer networking systems. And I did that for several years until the income from the businesses — and I say, businesses, because we wound up buying more than one of these stores because they were so easy to run — replaced my income and my wife’s income, then we both walked away from our jobs. And now we have four stores and we work twenty to twenty-five hours a week running the four stores, and the rest of the time we spend with our kids.
Do you need employees and attendants, or can Laundromats be automated and operate without constant supervision?
Depends upon the size of the store. Can they be run without supervision? Yes, they can. The question is, what kind of experience do you want to give your customer, and how much income does the store generate in order to pay for that? I’ll give you an example, if you have a small store, maybe it only grosses $10,000 a month. Well, if you pay for full-time attendants, you may be spending $2,000, $3,000, $4,000 a month to pay for the labor to have somebody come in and run the store all day long. Well, depending upon what your other expenses are, that may eat up all of your profits. So in that case, you wouldn’t spend the money to have it fully attended. There are many small laundromats throughout the country that are completely unattended and only require somebody coming in at nighttime to make sure that it’s clean. Now if the store is more popular, a larger store, and it has more volume, then you have the extra income available to hire somebody part-time or maybe even full-time. The more that there’s somebody there, the cleaner the store will be, it will be maintained and the more the customers will like that and that will help increase the income as well.
What kind of laundry equipment are you going to need? Can you kind of walk us through the different types and tell us which manufacturers have the best reputations?
Sure. As far as equipment types, there’s basically washers and dryers and two types of washers. One is what most people have seen or used at home, the conventional top-loading washer where there’s a lid on the top of the washer and there’s a bucket, and the clothes go into the bucket and the bucket fills up with water and there’s an agitator that kind of helps the clothes roll around inside the water. Basically, they soak the clothes and kind of agitate the water a little bit so that the clothes come clean. That’s a very old technology, that’s how washers started out, and we see those more and more being phased out in this industry. The norm is these front loading washers, where there will be a door on the front of it, and it’s like they took that basket and they put it on its side so that there’s no agitator and the clothes get stuffed in and then the doors close and lock, and then the clothes tumble as they are washed, and the tumbling action helps to bend the fibers of the clothes and has much better washing action, so the clothes get much cleaner and they just work much better. The other thing is that because the washers are on their side, the washers can be much larger in capacity, so they will generally hold quite a bit more clothes than the top-loading washers. Now as far as dryers go, the most common dryers are dryers that will hold thirty pounds of clothes. More recently they have dryers that have a greater capacity, and they go from thirty pounds up to forty-five pound, fifty pound dryers, to seventy-five, eighty pound dryers. They even have a hundred and fifty pound dryers. There are probably close to a dozen different brands for washers and dryers. I would say that most major brands manufacture a very good washer. I think that any of the major brands you’d do very well with. And I consider the top four brands to be — and not in any particular order — Maytag, Speed Queen, Dexter and Wascomat. They probably sell the most out of all the brands that are out there. There are certainly lots of other brands that also manufacture good machines. Those four are probably the ones that sell the most in the US. I think that any of those brands you’re going to get a very good quality machine, and so it really becomes more of a price issue and what kind of service you can get from your local distributor when you go to buy equipment.
If you do decide to buy a laundromat that’s already in operation, talk about the process of evaluating a profit and loss statement. What are some of the red flags that you look for?
That’s a great question. Some of the red flags I look for is, I look to see whether or not for the equipment mix in the store, how much the equipment is asking for a vend? How much does it cost to start the washer? How many minutes do you get for a quarter when you dry? Let’s say you have twenty washers and each of the washers are vending at two dollars to start the washer. Well, if you multiply two times twenty, you get forty dollars, so it costs you forty dollars if you ran every washer one time. Now industry-wide, three to five turns per day, and “turns per day” is industry jargon meaning how many times each machine has been run in a day — three to five turns is the industry average, so let’s just say you picked four turns per day as what the store would do. If you have forty dollars for one turn, you multiply that by four, now you’ve got a hundred and sixty dollars for washing, you could multiply that by thirty to get your monthly gross revenue. Well, if you take that number and it’s close to what the seller is saying that the income is, then you know you’re in the ballpark. But let’s say that the seller says the income is much higher than what that number would be, then you have to say to yourself, can this store really be doing that much business? Because remember, most stores throughout the country do anywhere from three to five turns, so if their number equated to eight turns per day, then you’ll want to take a careful look at that. But likewise, when we’re looking at the profit/loss statement for expenses, there are a lot of expenses that the seller may not be telling you about, so you want to understand what all the big expenses are and come up with how much those expenses should be, and just verify that the profit and loss statement is accurate. Remember when I talked earlier, I said that the value of the business is based on a multiplier of what the net income is. So if the net income changes, then that small change can have a dramatic impact on the value of the business.
What is a water analysis and why do you need it when buying a laundromat?
A water analysis is a way to estimate the income of the business based on the water usage. So what happens is, you take a look at the water bills, and figure out how much water the business is using on a monthly business. Then you back into the income by looking at how much water is being used, how much water is used for each machine, and then figure out how many times in the month each machine is used, and you multiply that by the vend price to come up with the income that the washer is generally doing. And then you can add to that what the average income for dryers would be. In most stores, the average dryer income is somewhere between 40% and 60% of the wash income, so if you were to take 50% of the wash income as the average, if the wash income is $10,000 a month, then you can figure ballpark-wise, the dryer income would be another $5,000 for $15,000.
So you use this to make sure the seller isn’t over reporting profits?
Exactly. Remember, this is an all cash business, so you want to make sure that the seller is being honest with you, and again, a $500 per month over reporting of the income and a $500 a month under-reporting of the expenses, that’s a $1,000 a month of net profit that you’re really not seeing. And that $1,000 a month could cost you as much as $50,000-$60,000 in purchase price because you missed it. So it’s very, very important for you to get those numbers accurate to make sure that you’re paying a fair price for a store and not overpaying.
What are some of the secrets to marketing your laundromat, and what are the secrets to repeat customers? What makes someone choose your laundromat over the ones nearby? I guess, specifically, how do you rise above the competition?
That’s a great question. The one thing that most people would think, right off the top, is well, price. Customers are always driven by price. In a recent national survey conducted by the Coin Laundry Association, surprisingly, price was not the number one reason why somebody visited a particular laundromat. In fact, it was around number seven. Much more important to most customers is the location, the proximity to where they live, and how well the store is maintained and whether or not the store was clean and inviting. Bright and well-maintained machines, bright stores, cleanliness is very, very important. All that is a much more important factor to most customers than the actual price. So as far as marketing goes, you want to highlight the fact that your store is better maintained and your store is cleaner than maybe some of the other stores in the neighborhood. Let’s face it, nobody wants to do laundry, it’s a chore. So you’re going to try and have amenities in your business that maybe the others don’t. Maybe you could put in a TV or two, so they have something to watch while they’re folding and doing their laundry, or you’ll have attendants there, perhaps, if the store is busy enough, that can handle any questions that they have or if they experience a problem, they can get refunds quickly. The main thing is letting your customers know that you’re even there, so sending out postcards or flyers or door hangers is a very common tactic for marketing a business and it works very well for the coin laundries to let customers know, hey, we are here and we’re doing a better job than others. And then customers will come in and try you out.
Are there magazines and other publications dedicated to the laundry industry that might be of interest to someone just starting out?
Sure, The Journal, and that’s produced by the Coin Laundry Association, and Coin Laundry News and then American Coin-Op Laundry. Those three would probably be the biggest publications that are specific to the coin laundry industry. And the best part of all is, each of those publications you can get free subscriptions for.
What about online forums or other internet resources? Any of that come to mind?
The Coin Laundry Association does have a nice website, and within their website, they have a forum that a lot of people use to ask questions. Also, I have a website that I use to send out a bi-weekly newsletter. I get a lot of helpful hints with that, too.
What trends do you see in the coin-op laundry business? What do you see happening in the future with this business?
I see more and more larger capacity stores opening up, just larger stores. The average store is about 2,300 square feet, and we’re starting to see more and more stores that are bigger than 4,000 square feet opening, so I would expect to see more of that in the future. I think that we’ll see a lot less top-loading washers and more stores that don’t have any of those, moving towards the front-loading type of washers, and stores that have larger equipment capacities, where in the past, you might have a store that it maybe has one or two large capacity, say, fifty pound washers. Now stores are opening up with sixty, eighty pound washers, even up to one hundred and twenty-five pound washers. And so just larger capacity, bigger stores, I see more of that, and I also see the store owners starting to move more and more towards some sort of a card system, rather than using coins, because with the larger capacity machines, they vend for a higher price, then could you imagine having a washer that costs ten dollars and having to put forty quarters in? That would take you forever!
It seems like a large percentage of good laundromats are located in the leased locations. Talk about strategies for negotiating the best lease terms.
Most stores, probably 80% or more, tend to have a lease associated with them, and so there are things that you need to look out for with a lease. The ideal lease would be one where it’s either a straight lease for the entire length or you have a lease with several well-defined options, maybe like a five year lease with two or three five year options. The key things that you look for is you want to have a lease where you’re tying up the space for fifteen years or more, and the main reason is because you want to be able to recoup your investment if you were to re-equip the store, the useful life is fifteen to twenty years on most of the machines, so you want to be able to make sure that you’ll be able to be there from the length of time that the equipment will be good for. There’s no sense in having a lease of five years and spending the money to put in machines that when your lease is up, the landlord doesn’t renew, and have ten years left of useful life on the machines that you paid for. Of course, if you have any debt service on those machines, you want to make sure that the lease is longer than the debt service, so that once the debt service is paid off, you have a few years where you get to just keep all the profits from the debt service that you were paying before. You like to have a lease that is well-defined. You don’t want a lease that can be increased every year. Many leases would be based on the consumer price index, and you have no idea how much that’s going to change on a yearly basis. It’s a better idea to have a lease that’s fixed for say, a five year period. And every five years, the rent increases. If you can avoid leases with triple net, and just briefly, triple net is when a landlord not only asks for rent for your unit but also asks for you to pay a percentage of the property tax for the building, the insurance for the building, as well as common area maintenance like landscaping and blacktop resurfacing and that sort of thing. You want to try and avoid leases with triple net if you can, and that’s becoming harder and harder to do, but those are things that you look for.
What are the biggest mistakes you see people making when they start a laundromat or purchase an existing one?
The biggest mistake, and the most costly, is certainly that people overestimate the income. And when you make that mistake, like I said, it’s very costly. A laundromat’s value is about fifty times the monthly net income, plus and minus some adjustments, and we don’t have time to go specifically into how you do all those adjustments, but if you just take the fifty times monthly net income as an average price for a laundromat, if you overestimate the income by $1,000, that’s a $50,000 overpayment that you’ve made for the Laundromat , and that’s real money. That’s painful if you’ve made a $50,000 mistake, because that’s cash out of your pocket. So overpaying for a store I would say is the number one thing that people do wrong. Another thing that people do wrong when they’re getting into this business, is they don’t spend enough time negotiating the lease, so that they get a lease that’s well-defined and is a reasonable lease. If you spend too much money per month on your lease, over time, the lease will essentially eat all the profits of the business. One of the things I always recommend people do is take the lease that they’ve negotiated and calculate out what the lease will be ten years from now, and then figure how much money your store will be making ten years from now. If the gross income is the same, does the store still make money and is it still worth your time if it was ten years in the future? Those are the two biggest that I would say most people make, and those are the most costly.
Brian Brunckhorst owns several successful laundromats and is the author of Secrets of Buying and Owning Laundromats.