January 4, 2023
Adam Hoeksema
If you’re looking to run a low-maintenance business with little experience that you can nurture into a more profitable venture even in your spare time, a laundromat might be the way forward. While there’s plenty to consider when purchasing one, it should involve a lot less trouble than starting one from scratch, and there are countless funding options available.
Here, we’re going to look at the process of purchasing a laundromat and point out the key considerations in doing so. Before we do that, let’s go over the industry as a whole and why so many people are interested in it.
Laundromats: An Industry Overview
There are around 35,000 laundromats in the US, generating around $5 billion in gross revenue between them. By 2027, it’s thought that the market size for coin-operated laundries will have grown at a CAGR of 9.4% to $30.1 billion.
Factors that are affecting this growth are numerous. As traditional gender roles dissolve, laundry has become more of a burden with the increase of women entering the workforce, and the convenience of a laundromat service becomes appealing, especially in locations where residential space is limited and expensive.
Increases in the working-class population contribute to a rise in both of these factors, and a growing number of industries using laundry is also creating demand. Hospitals, hotels, and other commercial establishments may seek fast and hygienic solutions to their high laundry needs.
Challenges faced in the industry often relate to the high maintenance cost of machinery that wears out over time, as well as the mechanics of coin-operated machines giving way to the convenience (and higher expense) of card-based or touchless machine operation.
Still, owning a laundromat can be a great investment for a number of reasons:
- They require very little experience to run
- There are generally low overheads and can be run by one or two people
- They can be expanded to incorporate numerous other revenue streams
- There’s plenty of financing available to help with your purchase
As a result of these perks, 95% of laundromats are successful and commonly make between 20% and 30% ROI. This makes buying a laundromat an appealing prospect for many investors, but the process can still be somewhat complex and take a long time.
When looking to purchase a laundromat, the first thing you should consider is the setup cost.
How to Purchase a Laundromat
Laundromats don’t suffer from the confusing diversity in their models like some other businesses. The common models aren’t all that different, with the most contrasting segments being on either side of the split between industrial and personal use.
This makes it relatively simple to pull up some figures about how much you’ll need to spend and on what. The typical laundromat serves local residents, is open between 6 am and 11 pm, and offers coin-operated service between those times. Some models might offer 24-hour service, and you’ll have to do your market research to establish whether this is a good idea, but in most cases, this won’t be necessary.
The average facility is 2,170 square feet, and chains are uncommon. Your major demographics will be low-income renters and those within a mile of the facility. In fact, the median income for laundromat customers is $28,000. You’ll be looking for repeat customers, but you may also benefit from tourism too.
All of this will affect the location that’s best suited to run a laundromat, and if you were starting one from scratch, you’d probably have startup costs of around $200 to $300 per square foot, amounting to anywhere between $400,000 to $1 million; buying an existing one, all-in, will probably cost a little less.
Disregarding exceptions relating to the age and condition of the equipment, buying a laundromat should cost between four and six times the annual net revenue it brings in. This might sound like a lot, but there’s some good news ahead.
Around 36% of laundromat investors consider it a side gig. Since the maintenance and overheads are so low, it’s a relatively easy business to run simply. However, running it like this creates a lot of inefficiencies in the business, and this is where the good news comes in. If you find the right one, you’ll be able to pay 4-6 times the revenue and immediately boost that revenue by running a tighter ship.
Spend a short time looking and you’ll see figures that may or may not be appealing: a single, coin-operated laundromat can be valued at anywhere between $50,000 and $1 million, and can generate cash flow between $15,000 and $300,000 per year.
The trick, then, is to put the right work in to learn how to buy a laundromat that just needs some tweaking to boost its profitability. Let’s take a look at how you might be able to do this.
Buying a Laundromat: Finding the Right One
There are several ways in which you can approach this. Depending on your location and the time you have to dedicate to the hunt, consider one or a combination of the following:
Brokers – You might be able to find a list of brokers in your area, and starting here could save you a lot of time and effort in narrowing down your options. Many sellers use brokers to list their businesses, so once you’ve got hold of some, you might be able to find good deals before they’re even available in more public spaces. Brokers will also likely work with an escrow system which can help make the ultimate transaction much more secure.
It’s up to you to balance the cost of the broker against the benefit of the options available, as they won’t come cheap.
The Internet – by now, you’ve probably dipped your toe into some listings already, and you’re familiar with how convenient and simple it is to browse the options available. One thing to remember here though is that if they’re listed online, they may have been rejected by the available brokers. There may be a reason behind this that you’ll want to know!
The Laundromat Itself – When you pass by one that looks appealing, it’s sometimes a good idea to drop in and check the place out. This will give you a chance to speak directly with the owner, have a look around, and find out some useful information. First, of course, you can ask if they’re selling. But chances are they won’t be, in which case they may have some news about someone who is.
This of course is a slower method, but sometimes the quality will compensate for the quantity.
When entering a facility, consider the following as the most basic considerations:
- How many machines you’ll need and how many do they have?
- Can the space be used more efficiently?
- Is there enough room for folding?
- Will it be suitable for future expansion, should you plan to?
When you do find a place you’re interested in, the process of buying a laundromat can begin.
Considering a laundromat? Integrating a Quality of Earnings Report Sniff Test into your evaluation process could be enlightening.
How to Buy a Laundromat: Find Funding
Before you reach out to bankers or investors, you’ll want to have your prospects in order. Putting together a good business plan will help you with this, but you’ll also need to know that the figures you get from the owner are accurate.
Your financial forecast will be what lenders review to ensure your plan is viable, so make sure they’re accurate and detailed! Your business plan should demonstrate a strong understanding of the market and your competitors, and depict a realistic outcome of the changes you plan to make.
If you are looking to acquire a laundromat, ProjectionHub has a financial projection template that is designed specifically for creating projections for an acquisition. This template can be customized to fit your specific needs, whether you choose to do it yourself or seek assistance. The template can provide you with a professional-looking document to present to lenders or investors, as well as help you make informed decisions by showing you the most profitable options.
When your documents are in order, consider the following options for where to look for funds:
Cash – if you’re lucky enough to have access to the funds yourself, consider paying for it all in cash. You might get a lower price with this method, and you’ll likely be able to move through the process more quickly.
Bank Loans – If the record-keeping from the previous owner is up to scratch, and your financial documents are appealing, a bank might be interested in funding your purchase. These loans can present you with a rapid injection of capital but you’ll have to pay it back, even if your business doesn’t make money. You can get pretty creative with SBA loan structures to buy a business.
Investors – Again, you’ll need to display high chances of profitability to get investors interested, but if you can do this, you’ll be in with the opportunity to risk their money instead of your own, and possibly even benefit from their experience in the industry, if they’re offering it. The downside to investment is that you’ll have stakeholders to appease, usually in the form of equity shareholders, who can vote on the direction your company should take.
Whichever path you choose, making it a good decision relies on the effort you put into the next step.
Purchasing a Laundromat: Due Diligence
Your aim during this phase should be to make sure:
- The laundromat is making the money the owner says it is,
- They’re spending what they say they’re spending,
- The business has a profitable outlook
- You are able to make the adjustments necessary to increase the value of the business
In answering these questions, you’ll be able to find the leverage you need to settle on a good price.
Laundromats that deal with cash have a lot of perks, but they are also able to obscure the money they make a lot more easily. One of the best ways to get a feel for this figure is to show up and take part in the coin count at various times during the process. This will give you a figure to compare to the seller’s financial documents and should indicate quite quickly if they’re exaggerating by any significant amount.
You can also monitor the premises and make a note of the traffic that enters to get a feel for how much they might be bringing in.
For the second point, you’ll need to establish the costs of doing business. Laundromats don’t have a lot of variable expenses, which simplifies this, but their fixed costs are usually quite high. This means that there won’t be as many months where you can scrape by on low income, and little space to cut costs, so the income has to be enough every time to pay for the upkeep.
Rent, labor, and maintenance will be the highest fixed costs, and you can get bills for all of these. Taxes and permits will come in second, and once you’ve got enough to figure out how accurately the expenses were reported, you might be able to change your offer accordingly.
This stage of your diligence should give you a feel for how honest and trustworthy the seller is, too, which will give you a sign as to whether you need to dig deeper or consider finding another person to buy from. If you’re seeing a lot of red flags, make sure to get a third party involved to help you make that decision.
When it comes to identifying the prospects of the business, you’ll need to check out the:
- Lease,
- Machine condition
- The condition of the plumbing and electricals
- The quality of the employees
If your property is going to be crowded with machines, your lease might need to include space for replacement parts and items, should you need them. If you are to order new machines, you’ll need to have somewhere to put the old ones! Also, look for how long the lease will be and how much you can extend it by.
The condition of your equipment is critical to your operations, so make sure your machines are in order, the boilers all work, the change or card machines aren’t stealing money, and everything is hooked up and working as it should. Get a professional to check out the hardware and give their opinion on how long it has left.
If there are any repairs needed to drainage, plumbing, or electrics, the seller should be responsible before the deal can go through. Remember, these problems don’t have to be deal-breakers, but they can work in your favor if you’re able to either get them fixed at the seller’s expense or lower your offer on their account.
Further, these are serious considerations that could cost you a lot if you don’t catch them early so consider the time and money you put into this stage as an investment.
Finally, check out the staff. Get to know them personally, and try to get a feel for their attitude and what they bring to the role. Your business relies almost entirely on the people representing you, so don’t overlook this as part of your diligence checks.
Ensure they’re doing the work they’re supposed to be doing, and to a standard that you’re happy with. If not, consider whether restaffing or re-training is in order.
With all this information under your belt, you should be able to tell what a lot of the easy fixes are to boost the profitability of the business. If it all looks good, it’s time to close the deal.
Buying a Laundromat: Closing the Deal
At this stage, if everything is to your satisfaction, there’s not much stopping you from handing over your money. However, as is commonly the case, the figures that you’ve discovered may vary quite a lot from those the seller presented you with at the time you made your offer.
This means you have the opportunity to renegotiate, whether for a lower offer or for a conditional offer based on the need for repairs and adjustments to be made first. At this end of a lengthy process, it can be useful to remember that the seller has two options: leave with nothing, or leave with a significant amount of money. This should inspire them to help you find a suitable price, but since you’re in a similar boat, you’ll have to remember that backing out of a bad deal is preferable to being sucked into it.
On having your final offer accepted, the business can be transitioned to your hands, and you will be the new owner of a laundromat.
Buying a Laundromat with No Money Down
We have been discussing how to buy a laundromat with SBA loans or equity investment, but what if you don't have access to that financing? Buying a laundromat with no money may seem like a daunting challenge, but it’s possible with some creative financing. One strategy is to partner with an investor who can provide capital in exchange for a percentage of ownership. This allows you to maintain control of the business while still getting access to the funds you need to purchase the laundromat. You can also look for a seller who is willing to finance the sale, either through a loan or through a seller financing agreement to accept payments over time. This allows you to pay for the laundromat without using your own money.
Another option is to take out a loan from a bank or other lender, using the laundromat as collateral. This will require you to have good credit, however, and you may need to provide additional collateral to secure the loan. SBA loans will still require at least 5% as an equity down payment from the owner though.
Search funds are a unique way to finance an acquisition. Search fund investors can put up the cash to acquire the business, and then you can operate the business in exchange for a percentage of ownership that will vest over time. In this scenario you can truly be a part owner and the operator of a laundromat with no money invested into the business. Learn more about how to start a search fund.
Finally, look into a lease-to-own option. This allows you to make monthly payments that go toward the purchase of the laundromat. It also allows you to adjust your payments to fit your budget and timeline. This option can be a good fit if you have room to increase your payments over time, or if you have no other financing options. Be sure to read the paperwork carefully and understand the terms and conditions before signing anything
Conclusion
Purchasing a laundromat could be a lot more straightforward than setting one up from scratch, but there are still multiple factors to take into consideration, and the nature of a cash-based company puts the onus of due diligence squarely on your shoulders.
Still, if you’re not looking to build a chain, you could be in with a great opportunity to make some money. Knowing how to buy a laundromat that just needs a little tweaking to boost its profit is the key to taking advantage of an industry that can be extremely low-maintenance and profitable when done right.
