6 Essential Considerations Before Buying a Laundromat

Thinking of opening a laundromat? There’s never been a better time. The laundromat industry is experiencing something of a renewal. Laundromat businesses are growing, they’re digitizing and most importantly, they’re profitable. It’s no wonder that business savvy entrepreneurs are increasingly looking at them as their next profitable venture.

But before you commit those initial costs, it’s worth taking a closer look at the realities of running a laundromat. Yes, a laundromats can be a highly profitable business, but only when run correctly. There are many myths out there about passive income - approach these with caution. Like any business running a laundromat is hard work, they take time, and commitment. If it were easy, everyone would be doing it. Before making any decisions you need to think through your business plan, assess its viability and be comfortable that you’ve set yourself up for success.

We’ve rounded up 10 essential considerations every potential laundromat owner should ask themselves before they commit to getting started in the industry.

1. To buy or to build? 

This one’s a biggie. There are pros and cons to both and your decision will be influenced by a number of factors including your business location. If you’re in a city you may not have any option but to buy or even lease the building. But if you’re in a location where you have the option it’s worth weighing up the pros and cons of each. 

Buying

One of the most obvious perks to buying an existing laundromat is that it should come with immediate cash flow, a customer base, and pre-existing operational aspects. All of which can take a long time to build if you’re starting from scratch. However, while buying might seem like the shortcut to success, it can also come with drawbacks. Ask yourself why is this business for sale? Is it in a poor location? Is business failing to thrive - if it already has a poor reputation you’ll have to work to turn that around. Finally, what condition is it in? Are you going to have to invest in new machines and equipment? While still cheaper than building, these can carry a heavy price tag and can have a series impact on your profitability in those all important early months.   

Building: 

Say you decide to build your laundromat, creating your perfect business from scratch. You’ll get to develop everything to your exact specification (budget allowing) and customise everything to your liking. You can start with new laundry machines, in a sparkling new store, free from any legacy issues which can come with a bought store. But what you won’t necessarily have is a ready made customer base. You’ll need to build this up as you go which can take time. It might also take a considerable amount of investment in marketing strategies as you work out how to attract your target customer and build up that loyal customer base. 

Ultimately there is no hard and fast rule here. Many veteran laundromat owners prefer to build their businesses themselves - it speaks to their entrepreneurial spirit. But even the committed build believers will admit that it carries more risk, and that when you’re finding your way in the industry it can often be better to take your risks and learnings in the safer environment of a bought store. When it comes down to it, the decision to buy or build is a deeply personal one, all you can do is weigh up the pros and cons of each.

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2. Location is Crucial

When it comes to running a laundromat business, do not underestimate the importance of business location. Don’t get fooled by a beautiful store - look at what goes on around in. Does it have a high volume of foot traffic? And residential areas? If not, how will you attract potential customers? Even if they’re driving, remember people aren’t going to travel miles to get clean laundry, even by car. Speaking of cars, if you’re relying on customers to drive, make sure that your potential location has plenty of parking. Finally, check out the local market competition. Are there nearby laundromats? In a high competitive location it can be a challenge to stand out from the crowd. However, if there are no competitors, take a second to think why not? Ask around, have other laundromats tried and failed in this area? You need to have a complete picture in your mind so you can understand the challenges (as well as the benefits) that your potential location may pose. 

3. Understand the Financials

Sounds obvious, but you’d be surprised at few people do a thorough financial analysis of a laundromat business before they purchase it. It’s a trap that many first time buyers fall into. And we can see why - sometimes you just don’t know what you don’t know.

Fortunately, we put together a very thorough guide to verifying the financials of a laundromat here, which covers everything a first time buyer needs to consider. From profit margins, to utility costs and financial statements, and even how to conduct a water analysis. It's a step by step guide to ensuring the financial success of your laundromat. But don’t just take our word for it, you’ll find plenty of information available on how best to approach verifying the financials of your potential business. 

Consider Financing Options

You’re set on launching your first store - but build or buy, you’ve got to come up with the initial investment to make it happen. And that can mean finding some serious money, with average costs estimated to sit anywhere from $200-$500k. That’s a lot of capital to outlay. It’s well worth doing your research and exploring the various financing methods and business loans open to entrepreneurs. These include SBA loans, Home Equity Line Of Credit (HELOC) or even seller financing. Each option has its pros and cons depending on your financial situation and goals

SBA Loans

 This is a pretty common form of financing across many types of industries, including laundromats. On the plus side, you’re not having to pay up front. On the other hand, SBA loans can take a while to process, which can be a problem if you’re wanting to move fast and close a business deal. They’ll usually want to see 2-3 years of your personal income tax returns as well as the existing laundromat finances. In some cases they may also require you to use your home as collateral. It’s also worth bearing in mind that if the business has been underperforming to date, the SBA may view this as higher risk and require you to put up more of an initial deposit, or even decline the loan. 

Home Equity Line of Credit HELOC

If you’re a homeowner, then HELOC may be a sensible funding option for you. It essentially means taking equity out of your property and using it to fund purchasing your store. This is attractive to many first time buyers as generally speaking it’s easier to qualify for a HELOC loan than an SBA loan. However, if you don’t own your home or you don’t have enough equity built up then this line of financing won’t be open to you. 

Seller Financing 

Another popular option, although possibly less well known, is seller financing. In this situation, the existing owners keeps part of the store and you buy them out over time. This can be good for you and the current owner - there are tax benefits to getting that money slowly vs all at once for the seller (depending on their personal situation). Plus it gives the seller a steady stream of ‘income’ for the period that you agree. As for you, you don’t have to pay the full amount in one go, meaning you have to raise less cash up front.

Again, there is no perfect answer. Different methods will appeal to different people based on your one circumstances and business model. It might be worth reaching out to a few laundromat owner forums such as CleanCloud’s community to ask how people financed their businesses and what their learnings were. Or check out articles such as Buy A Laundromat’s article on financing your laundromat purchase,. The key is to gather as much information as possible so you're making an informed decision.

5. Evaluate Equipment and Technology

If you’re buying an existing store then we cannot stress enough the importance of looking at the condition of the existing washing machines, dryers and any other equipment on site. In fact, this should play into your financial planning stage, but it’s so important we’re stating it twice. Brand-new machines, are usually energy-efficient and can save you significantly on utility costs and attract tech-savvy customers. Whereas older machines are more likely to break quickly and require time and money spent on repairs. Equipment costs are one of those sneaky hidden costs that would be business owners can overlook in the planning stage, but they can start to add up fast once you're operating. If your budget can stretch to it, consider investing in equipment that supports mobile payments and other digital integrations - customers are always looking for convenience, you want to make it as easy and appealing as possible for them to do their laundry with you. 

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6. Plan for Service Diversification

In a perfect world you’d buy a brand new, modern laundromat with a ready made customer base and you’d be running a profitable laundromat business from day one. The reality is likely to be somewhat different, whether it’s a full on zombiemat or a traditional coin laundry, you should begin your journey into the laundry industry by thinking about how you can grow the existing offering and add to your income stream. This might mean providing additional services like wash-and-fold, dry cleaning, or pickup and delivery all of which can significantly boost revenue. Of course each new stream comes with additional work, and in the case of pickup and delivery can come with additional overhead costs. So it’s important to evaluate each and select the ones that along best with your target market, and overall business goals. Without doubt customers are looking more and more for wash dry fold and delivery services (see that earlier note about the customer experience being centred around convenience). Wash Dry Fold is a service that you can set up relatively easily, and with relatively low startup costs and ongoing costs can add significantly to your bottom line. You might be thinking that Pick up and Delivery carries a heavy set-up fee, but when you work with a POS like CleanCloud you have the option of using on demand delivery services through Doordash. This allows you to test the appetite for pickup and delivery in your area without investing a significant amount of money up front - it’s a win win!

Choosing what’s best for you

As we’ve seen, there is a lot to think about when you're going through the acquisition process - the above is just a snapshot of some of the most common questions we see coming up from laundry business owners. The good news is that while there is a lot to think through, the rewards are high with laundromat businesses enjoying an impressive 95% success rate and an average 25%-35% Return on investment (which is why they're such a smart investment). As long as you do your research and have a clear understanding of your local market, what you want to achieve and how you’ll fund it, there’s no reason that you won’t soon be running a highly profitable laundromat business.