Net Profit - CLA Survey Results

[rgrimes]

I have a blunt question for you guys that have been in the business for a while.

I am writing my business plan (still!) and after re-re-reading the CLA Industry Survey results, I'm not sure I understand this.

Page 16, Question 13. "What percentage of this store's 2000 gross revenue was considered NET PROFIT (before taxes)?"

If I am reading this correctly, on 100,000 revenue, the margin is 15% or $15,000??
If this is correct, why are we in business?

Surely I am not understanding correctly. Please help me.

Thanks!

[Howard]

You're correct, if that is a correct answer there is no reason to be in business. My number is more like 40%

[kern]

Here's another perspective. The net profit before taxes should include ALL expenses, including anything paid to employees, managers, AND to owners and/or stock holders. Hence, if the owner were to pay him/herself a salary on a regular basis, and if the net profit before taxes was 15%, that ain't too bad a deal. That means the business itself showed a before tax profit of 15%. Of course, if the owner didn't take anything out of the business than 15% would be terrible.

You have to make sure you are comparing apples to apples when you are talking net profit before taxes. I suggest your account of CPA or other financial person could give you an honest, 3rd party evaluation as to whether your 100,000 gross revenue is netting you the net profit before taxes that it should. That is to say, as compared to some other form of business with the same net profit before taxes, no the same gross revenue.

Boy, that was confusing.... Bill

[rgrimes]

OK, so that 15% figure in the CLA results was AFTER salary to owner, which is subjective.

Thanks!!

[Weston]

I don’t know if that 15% return really is after owner’s salary. Here’s one owner’s story. I’m in a small town of 4000 with only one other laundry a mile away. They are unattended and the equipment is beat but they attract the smokers and riff raff (not that all smokers are riff raff) and do a fair business. For the first five years. it seems everything went back into our business, from equipment replacement to store remodeling.

After 5 years in the business, I netted 27% of gross last year (2001) before salary. Actually I don’t take a salary but take “draws” from time as the business checking account gets bigger than it needs to be. We also have drop off dry cleaning so the gross is somewhat distorted in the sense that only 30% of DC is kept and 70% goes to the DC wholesaler. Attendant’s Payroll is a whopping 24% of gross even though we pay our manager only $7.05/hr and our part timer gets $5.75. It bugs me that all of the revenue from W & F AND Drycleaning does not cover payroll costs and I have to remind myself that the attendants do other things ... keep the place clean, customers feel safe, etc. But my next laundry will be unattended to be sure!!

Getting back to percentages ... I have added back amortization and depreciation in my numbers. I also do not have a rent expense since I now own the building free and clear. It’s kind of neat to be in a strip mail and own your own portion. From CLA info, it seems about half of laundry owners rent and half own the building. I would hate to have done a lot of renovating and then have the landlord raise rent. But I do have real estate taxes and plaza fees that add up.

[Howard]

Your net is not correct as it should include an imputed rent. While you own the building you are kidding yourself on your net as your realestate is getting a 0% rate of return. You need to calculate what the realestate would return if you rented it on the fair market and deduct that from your laundromat gross to have a fair analysis. Why would your accept a zero percent return on your realestate investment?

[SecretarytoBraveDave]

I would advise multiple stores in good locations where the demographics warrant, but never leave them unattended, hire dependable workers, and don't be cheap with them. Work at each store, know your customers, service your own machine. Strive for superior customer service and 25% or more profit should be within your grasp.

[Weston]

I appreciate your comments and you are right Howard. If I add the real estate rent expense, I come up with a net of 10.5%. That’s pretty discouraging. Both my wife and I spend a great deal of time in the business. I have done (and continue to do) all the repairs, including major stuff like transmission rebuilds. We do virtually everything ourselves including our own accounting. We now average 2.6 turns per day on washers. Utilities are 23% of gross with water and sewer being very high ... $1.18 per hundred gallons. Keep in mind that the gross sales number includes drop off Dry Cleaning of which we keep only 30%. We have nearly doubled business since taking over 5.5 years ago but still expenses are high. We now have a B & O tax on the gross, a municipal fee as well as a plaza maintenance association fee. We are open 98 hours per week and attended for 55. How in the world do you net 40%? Can I assume you have no attendants and work the store yourself and don’t take a salary?

And how does Brave Dave net 25% with attended laundrys?

Vasto
Weston

[Howard]

Attended 95 hours, open 110 hours. Have lots of WDF, charge high prices (but have high costs to - my water is $1.43/100 including sewer). You need more turns, atleast double what you are doing now.

[SecretarytoBraveDave]

Rent is obviously cheaper and he owns one of his buildiings. And we do much more than 2.6 tpd. BraveDave also has the knowledge and philosphy of 3 generations of maytag men.

Attended stores may cost, but the benefit to your customers well pays for them. The attendants in our stores keep the mats clean, provide change and are customer service oriented. The M-F attendant is responsible for WD&F. I am a fulltime multi-tasking manager, who also handles all accounting for the three seperate entities. (I of course, am underpaid....)

Your profits all depend on your location and the need in your area. There isn't much of a market in your area? or could you do something to entice more customers to your store? I too would be greatly discouraged if we did 2.6 tpd. You need to get your tpd up, then you'll see some gravy

[SecretarytoBraveDave]

Howard, I think you've told me before? If so humor me... What do you charge, or would you charge for 18lb 35lb, 50lb & 80lb frontloaders. What about tops?

When you think about increasing your prices would you do it in increments of 25 cents? Say .25 cent increase today 25 cent increase in 6 months. Or 50cent increase today? Would incoming competition be a factor in your decision making?

[rgrimes]

Thank you to everyone who has responded.

You guys have another job in addition to mat? Otherwise, I don't see how I can earn a living on 15%/year, and keep the store up.

I am becoming discouraged about doing this. I want a first-class (not fancy), attended store, but I do not want to be a part of a virtually non-profit organization.

Advice?

[SecretarytoBraveDave]

This is a bussiness that requires knowledge and hard work. You need a location in an area that will warrant a laundromat. Do demographics. Is there other laundries in the area you are researching? If there is one or two good stores in a certain area you don't want a split of the pie. There is only a certain amount of laundry customers. Do your homework, and do it well, then you will know much more clearly as to what you could possibly do.