Master Your Finances: Building Through Laundromat Ownership with Kurt Baker
Kurtis Baker, CFP® is a Certified Financial Planner Professional with Certified Wealth Management & Investment, and the host of Master Your Finances a podcast that aims to bring clarity to the world of finance.
Kurt: What will the audience know by listening to this show?
Cathy: That you can successfully transfer from a corporate position to a solo, entrepreneurial pursuit if you do your homework and are financially prepared.
The size of the global coin-operated laundries market was valued at USD $14.6 billion in 2019 and expected to grow at a compound annual growth rate of 9.4% between 2020 to 2027 (1).
What is driving growth are laundry services (e.g., wash, dry and fold); +4.6% internationally (2) triggered by the popularity of washable, “throwaway” clothes, casual work-at-home, and turning dry cleaners into competitors.
Laundromats aren’t what they used to be; Mostly “Mom & Pop” not a lot of investment made in upgrading equipment or creating an experience. Customers are characterized by mid-to-low income, some college, low home ownership/high rental, young children in the household. More of a “need to go” than a “want to go”
To compete in today’s world, owners must now address the needs of a broader segment of the populace; particularly those white-collar workers who are no longer getting their shirts and suits done at the dry cleaner. Why? Because the dress code has relaxed in most industry offices (remember “Casual Fridays”), and a greater share of high-income professional workers are operating out of their home long term. Yes, they have their own washer and dryer, but they have disposable income and less interest in doing it themselves.
In the past, dry cleaners benefited from cleaning machine-washable comforters and bedding. With the price of those items coming down and the remaining dry cleaners charging more, there is an uptick in the number of customers coming to a laundromat to access larger machines.
Trends in the industry: Cleanliness, trained staff, technology/coinless operation, layout, and community involvement (4)
Laundromat ownership as a superb second or full-time job
In 2021 over five million people in the U.S. started business - a 26% increase over last year (2020). The theory behind that is during COVID there was a major reassessment of life/work balance: “The Great Resignation”, the ongoing reluctance to go back to an office; that life is short, etc. Picking the right industry to invest resources in is critical. And according to the U.S. Chamber of Commerce, 40% of small businesses are turning a profit. Of the remaining 60%, half are breaking even, and the other half are losing money. Thinking back to one of your podcasts, with Angela Vendetti a restaurant expert, who spoke of how opening a café or food-related enterprise still captures the imagination of so many people even after the drumming restaurants took during COVID. I get it. There are a lot of great cooks out there; the barrier to entry can be low (think home catering or a food truck), and people must eat! But just because you can cook doesn’t mean you can manage all the moving parts of running a restaurant or navigate a pandemic when you are not labelled an essential business.
Laundromats, on the other hand, have a 95% success rate and when you factor in the personal flexibility, low labor costs, and the determination that the industry is essential, you have all the benefits of a profitable investment - without all the risks. During COVID people still must wash clothes; it is virtually recession-proof.
According to the Coin Laundry Association the average laundromat in the U.S. is a “Mom & Pop” and can bring in annual revenues of around $300K (3). The caveat being that the range varies widely. The ones that are pulling on the upper end, are obviously in a good location with demographics that have not altered significantly.
Profit margin is 30-40% and revenue flow depend on a few factors:
Whether you own or lease the site
If you plan to operate primarily a self-serve location with or without an outsourced service (e.g., dry cleaning) versus one that is full service because that would require personnel resources for customer service, folding, deliveries, etc.
If you plan to manage the operation, yourself or hire someone: banking, collections, repairs, etc.
If you opt for a new and/or large space that requires a healthy start-up budget for construction, furniture, and equipment costs versus an existing laundry that just needs rehab assumably requiring a significantly lower cash outlay. Should it be the latter, I advise expert valuation before buying. As seen with the car wash on Breaking Bad and the nail salon on Claws, cash businesses have a reputation of carrying two sets of books. The poor valuation will impact your ability to get a loan at favorable rates.
And especially good news for those interested in running one as a side hustle: There’s a mushrooming number of IT companies serving the laundromat industry, the investor now has a selection of software programs that enable remote store operation, payment options, organization of laundry delivery routes, payroll, and/or personnel activities.
(1) Grandview Research Company, (2) Zinc Consulting, (3) Martin Ray.com, (4) Planet Laundry
Kurt: What will they have? Tools, Systems, materials, etc.?
Cathy:
Basic Business Knowledge: The ideal investor/owner possesses business acumen (can read a P&L statement), has managed people, stick-to-it-tivess, and is willing to put in the work. The picture of the YouTube videos about how easy it is to buy a rundown cash-cow laundromat that requires only an occasional drive-by to collect the quarters is, in my opinion, a tad misleading because it is not balanced with the repairs, maintenance, security, personnel & operations management, necessary to keep the place from burning down.
Resources for business skills: NJSBC, SCORE, Coin Laundry Association, Business plan.
Personal Finances: As compared to a restaurant, a laundromat has a higher barrier of entry than say, a restaurant, hair salon or cleaning business, due to equipment costs. Therefore, credit worthiness; overall net worth and liquidity all play into what resources you can tap. If you are thinking of getting into business for yourself at some point, build a relationship with your local bank; find out what you would qualify for, and if they offer SBA loan - which carries low rates. Speak to your financial advisor for creative options with your $401K or IRA. And, once you get started, like any other venture, don’t quit your day job until you have broken even, and you have three months of operating cash on hand for emergencies.
Franchising: Is an excellent option for those who are new to an industry. And believe it or not, there are a few companies offering this option, including my company, Spin Doctor® Laundromat. Go to the brokerage firms we work with, our differentiator is that we promise significantly more hands-on training which leads to a fast ROI, an extended consultative period with experts, and four store models to fit the local demographics. That is why Spin Doctor® Laundromat Franchise made the Top 500 to Watch List in its first year with FranServe, the world’s largest franchise consulting firm.
Kurt: How will they feel?
Cathy: Encouraged, enlightened, perhaps like they can be a small business owner with less risk.
