How to Start Investing in Laundromats
WFHR EditorLast updated: July 24, 2023
Long before the pandemic, laundromats had always been considered resistant to recessions and economic downturns. Because of their unique ability to stay profitable no matter what, this business has been dubbed as ‘essential.’
Most of the allure of investing in laundromats is due to their impressive success rate of 94.8%, basic management structure, and cash-on-cash ROI of 20%–35%. So, putting it in a laundromat can make a lot of sense if you’ve been thinking about someplace to invest your money.
In this post, we’ll talk about the highs and lows that come with this type of asset. We’ll also give you a step-by-guide to help you get started.
Let’s dive in.
Laundromat Business Opportunity
No matter what you’re investing in, the outcome primarily depends on how management approaches the business. Operating a laundromat can be highly rewarding financially if certain elements are in order. These elements include having a convenient location to set up the laundromat. It includes effective marketing strategies, preventative maintenance solutions, and top-quality machinery.
Another aspect that can help boost the flow of income is having a working staff on hand. While traditional laundromats are known to be self-service businesses, hiring employees means additional operating costs.
Yet, as any successful business owner knows, you must spend money to make money, and the same applies to laundromats. Staff presence means more money with paid services like pick-ups, deliveries, and garment alterations.
The Pros and Cons of a Laundromat Business
As with any business deal, investing in laundromats has a few risks. Even though the good far outweighs the bad, it pays to know what you’re up against. This way, you can plan accordingly and dodge hurdles ahead of time.
Here are some of the most common pros and cons of investing in a laundromat
Pros of a Laundromat Business
- Serves as an additional means of income alongside your career
- Offers a high return on investment (ROI) of 20%–35%
- Uses a direct cash-for-service interaction, which discourages cash flow problems common in many other industries
- Low operating and labor costs
- Requires little to no inventory
- Doesn’t go through seasonal fluctuations
- Minimal employee management
- Provides incredible opportunities to grow and expand
- Isn’t restricted by franchise fees
- Caters to a growing demand for laundry services
Cons of a Laundromat Business
- Initial investment can be huge: May incur large substantial costs upfront, depending on the location and size
- You need to be a jack of all trades: You don’t necessarily need to be an expert in all fields simultaneously. However, you’ll be required to have a basic understanding of various skills like plumbing, electricity, marketing, and more.
- It’s a competitive business: You must bring your A-game to compete against other laundromats, neighboring facilities that offer laundry equipment, and customers who purchase their own washer/dryer sets.
- Unruly customers: Most people are a delight to serve. Yet, you need to be able to handle difficult customers or customers who cause conflicts in your business or abuse your equipment.
- Rising utility costs: The one thing all Investors dread is utility expenses. There’s little you can do to curb rising water, gas, and electricity prices. What you can do, however, is choose energy-efficient equipment and appliances to keep utility costs down and profit margins up.
Investing in Laundromats: A Step-by-Step Guide
Here’s everything you need to know to start your new laundry business venture.
Step 1: Research Demographics and Locations
The key to any successful business is to take your wares to where the people need them the most. In this case, your wares are the laundry equipment.
To do this, you need to research the demographics of the area. This includes the local infrastructure, population density, average household income for the area, and access to public transportation.
These factors will help you target your customer base accordingly and make the most of your marketing strategies.
The next step is finding a place with curb appeal. The trick is to choose a location that’s convenient for you. More importantly, however, it needs to be in a spot that will attract the largest number of customers.
This could be on a busy street downtown in the center of all the hustle and bustle. It could also be near a university campus where students and faculty can access easily.
Another ideal location would be near vacation rentals. This way, you can provide visitors and tourists with laundry services to make their trip more convenient.
Step 2: Analyze the Financial Performance of Other Laundromats in the Area
Start by asking people who have used various laundromats in the area for their feedback. Ask about what they liked and disliked. Also, inquire whether there’s anything they’d like to see added or removed.
This will give you insight into the local market landscape. It’ll also help ensure that your laundromat will stand out from the competition.
Another thing you can do is talk to a local laundromat owner. Ask about all the monthly expenses and potential income. The more details you gather about the business’s expenses, the more accurate you’ll be at calculating the profitability of your investment.
To do this, you need to subtract expenses from the income. The result will be the laundromat’s monthly profits. Then, you can determine whether the laundromat is generating enough revenue to cover its expenses.
Step 3: Decide on the Type of Laundromat You Want to Invest In
When it comes to this type of investment, you have two choices. You can look to take over an existing business, or you can choose to start from scratch.
The best way to decide is to figure out how much you’re willing to spend. This way, you can narrow your search and find something within your budget.
One financing option is to utilize crowdfunding platforms. They offer solid financing options, allowing investors to pool their money and purchase a laundromat.
This reduces the risk of venturing on your own. Plus, you get financial backing from various sources without going through traditional lending processes.
If you’re investing in an existing laundromat, you can factor in a rent deposit, startup costs, and utility deposits. You should also put away 3–6 months of expenses and call it an ‘emergency fund.’
Alternatively, if you plan on starting from scratch, you need to include the price of the laundry equipment, detergent, desk, benches, and chairs, TVs, and other various paraphernalia.
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Step 4: Develop an Exit Strategy for Your Investment
If you’re new to the world of assets, coming up with an exit strategy even before you’ve begun may sound strange. Yet, ask any successful entrepreneur, and they’ll tell you it’s prudent to start with the end in mind.
For starters, it helps you draw out a plan to minimize losses if the time comes and you have to pull out of your acquisition. This could happen because the laundromat isn’t performing as well as expected. You can also decide to end your investment if something better and more lucrative comes along.
Another way to boost profits is to identify one or two potential buyers or investors. This way, when it’s time to walk out, you’ll have someone lined up.
Step 5: Monitor Cash Flow and Profitability Margins
You need to keep tabs on the money once you put in the money. Even if you’re not a finance wizard, you only need to focus on the cash flow. Think of it like this: imagine that your laundromat is a small plant and the cash flow is everything it needs to grow big and strong. Without cash flow, there won’t be any income and, consequently, no profits.
In short, the business will wither away and die. Here are six ways to help you keep an eye on the health of your business:
- Always make sure the bills are paid on time
- Track revenue and expenses
- Take advantage of high-tech solutions, such as POS systems, inventory management tools, and accounting software
- Analyze customers trends to identify potential areas for improvement
- Study different pricing strategies that can impact the laundromat’s profitability margins
- Make the most of data analysis collected from various sources like sales reports, financial statements, customer surveys, etc.
5 Ways to Prepare for Success
Now that you know how to invest in a laundromat, it’s time to ensure that your investment enjoys long-term success and profitability.
Take a look at these five factors:
1. Make Your Business Stand Out
People love it when they get an extra bang for their buck. So, when you begin your business venture, look around at local competitors.
Can you spot areas of missed opportunities or improvement? What can your business do to fill that gap and provide the community with the services or amenities it currently lacks?
To help bring in new customers and ensure they keep coming back, you must set yourself apart from all the other local laundromats.
Here are a few ideas to try out that can brighten up the environment in your laundromat while making some extra income on the side.
- Same-day service
- Pickup and delivery
- Wash, fold, and iron
- Pet-only washing machines
- Garment alterations and repairs
- TV, arcade, and video games
- Free Wi-Fi
- Cafe
2. Cash in on High-Tech
There are mobile applications available that allow customers to check for machine availability. They can also pay for laundry via their phones. It eliminates the need to have cash or coins on hand. Plus, society is slowly becoming cashless and turning more towards digital or electronic forms of payment. With apps like these linked to your laundromat, you can bring in the new wave of technology and make life easier for your customers.
The app can also alert the customer’s phone, signaling when the cycle is finished. No longer do people need to sit and wait tirelessly at the laundromat. They can run errands, finish chores, or enjoy coffee. Then, when their clothes are ready, they can return to pick them up.
3. Invest in Energy-Efficient Equipment
When utility costs go up, it affects the profitability of your acquisition. In other words, you must keep them as low as possible while running a successful business.
This leaves you with one option: invest in energy-efficient and water-efficient laundry equipment. You also need to know of any machine errors as soon as they occur. This will help control utility costs, boost overall efficiency, and ensure all the laundry runs at full capacity.
4. Schedule Practical Hours of Operation
The whole point of investing in a laundromat is to provide customers easy access to washers and dryers. So, it makes sense for your laundromat to operate outside a typical business’s standard 9-to-5 working hours.
After all, a laundromat would be open when the customers are off work. This is usually on the weekends, early in the morning, and late at night.
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5. Watch Over Your Investment
Laundromats are indeed considered so low-maintenance they practically run themselves. Yet, some supervision is still needed to ensure the facility is always in tip-top shape.
It’s vital that the establishment is always clean and that all the equipment is in optimal working condition. It’s also imperative to see that any customer concerns are addressed as quickly as possible.
Most of us walk past laundromats daily without giving them a second thought. Yet, none of us can survive without them. That’s why many investors consider them a sure hit, no matter what the economy looks like.
As such, investing in laundromats can be highly profitable if done correctly. The hard part is in the planning and research. Then, once you figure out which plan is right for you, you can set up a successful business model.
To help ensure your investment remains profitable for as long as possible, use the tips in this how-to guide. With these in tow, you’ll be ready to handle anything the business throws your way. Soon, you’ll be an expert capable of making sound decisions regarding your investment today and for years.
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