Midlife Crisis!

By John Henderson | Mar 19, 2010

“What made you decide to open a laundromat?” and “How did you get started in the laundromat business?” are questions I get asked on a regular basis.

Like there’s a short answer to that.

Most people don’t have time to listen to the whole story, because it involves a lot more than they realize. Or care to hear. So I usually give them my stock answer of, “Well, I had an 11-year career with Southwestern Bell, followed by 15 years in radio as a news reporter, followed by several years in a call center, and I also played in a rock band and, of course, all of that just blended naturally into coin laundry ownership.”

The usual response is, “Huh?”

Sometimes guys my age begin to wonder if they made the right choices in life. You’ve heard it before – a guy leaves his wife of so many years for his “true soul mate,” a dishwater blonde named Stefani he met online. Or he gets a Porsche or a Harley or takes up hang gliding to prove he’s still got it. You know – practical things like that.

I built a laundromat.

Liberty Laundry in Broken Arrow, Okla., opened for business on Saturday, April 23, 2005. The idea of building a laundromat had begun nearly two years earlier. I wanted to go into business for myself because at the time I was miserable working as a customer service supervisor at a call center for a cell phone company. It was a wretched job in a dysfunctional work environment. I had worked there for three years. I was 50 years old and I had to change my lifestyle or die. It was that bad.

My oldest son knew I was looking for a business idea to strike out on my own and came up with the germ of the idea. Jay, who was working for a Tulsa hotel at the time, said, “Dad, I know a business you might want to look into. At the hotel, we can’t find anyone to wash our guests’ laundry, and we’re not alone. None of the hotels around Tulsa can find someone to pick up and deliver laundry.” Of course, now I know why. The loads would be little, the driving would be a lot, and hotels guests’ laundry would probably not be very profitable. But, researching the possibility led me to the Coin Laundry Association’s Web site, and my eyes started to open.

I didn’t know anything about the laundry business, but the more I learned, the more I became convinced this was something I could do and make it work. I spent months immersing myself in everything laundry, reading anything I could get my hands on related to the business. Much of the information I found about starting and operating a coin laundry came from the CLA, of which I became a member. I ordered “Today’s Coin Laundry” from them, which contained a lot of information about laundry startups. I visited laundromats. I found a distributor. I Googled “laundromats.” I looked at everything on eBay under “laundry” and “laundromat.” I read a year’s worth of back issues of The Journal. I started looking for the perfect location.

Six months after deciding to get into the laundry business, I found the property I wanted. I approached a bank, floated the laundromat idea by them, and was able to get a real estate loan to purchase the property. The property had been repossessed by another bank, and they had it priced to sell. In fact, I bought the land before I knew if I could get financing to start a business, but the property was such a good deal that I decided I could flip it even if the laundromat idea fell through.

With land that I thought was in a perfect location, it was time to start getting serious about building a laundromat. I knew I would have to put my money where my mouth was, so I put my faith in God, cashed in my IRA and started writing a business plan. I found a contractor and started drawing floor plans. I quit my job. I prayed a lot and drank too much. (I guess it was pretty sad when I did both at the same time.)

I was obsessed with anything laundry at this point. My family sometimes found it hard to be around me. Well, that’s not really true, but I know they got sick of listening to me go on and on about the laundromat business. My son joked that it was like that beer commercial where the guy’s wife couldn’t get his attention during the football game on TV unless she threw in the word “ball” while talking to him about other subjects. Only my family used the word “laundromat” or “laundry” and I was all ears.

In writing the business plan, I shamelessly plagiarized a sample business plan I found in “Today’s Coin Laundry,” simply changing things to adapt it to my circumstances. I also had the good fortune to have a friend who was an accountant, and he helped me develop the financial statements and pro forma needed by the bank. My friend was actually one of the people I had supervised at the call center and we had become friends. He spent a lot of time working on the numbers for me.

I guess the business plan was a good one. The bank agreed to finance the business, but only on the condition that the Small Business Administration get involved, since this was a business startup and I didn’t have a track record yet. We enlisted the services of the Small Business Capital Corp., which helped with the paperwork to secure an SBA 504 loan, which involves the sale of debentures. The deal worked out that my bank financed 60 percent of the loan and the SBA financed the other 40 percent, but guaranteed the entire amount. Of course, I had to put my money on the line, agreeing to about 35 percent of the construction cost. The amount agreed to was made available through a construction loan, which then was rolled over to a real estate loan after completion of the build out. Both loans were for 20 years and included the land, construction, equipment and furnishings.

Although the land was purchased in November 2003, it took until August 2004 before we finally broke ground. During that time, I secured the financing, continued working with the contractor developing the layout and design of the new building, and had to scramble for additional financing when the bank’s real estate appraisal for the proposed new business came in about $90,000 less than the amount I needed. Unfortunately, the bank didn’t appraise the potential for the business. They appraised the proposed property as if it were simply a real estate deal. In my opinion, the comparable properties used for analysis by the appraisal company had next to nothing in common with my proposed business. Anyway, that’s why my house, which was practically paid off, became mortgaged a second time. And I borrowed money from my father. And I took money out of a son’s college fund (but paid it back within a few months of opening.) I was determined to do whatever I could to make this work.

We got it built, but it wasn’t easy. I went with the low-bid contractor, and that turned out to be a mixed blessing. If I hadn’t chosen the low bid, the project would never have launched because the next-highest bid was significantly higher and I could not have gotten the loan from the bank.

On the other hand, as I’ve learned, a low bid might also mean a cutting-corners-it’s-only-a-laundromat-so-to-heck-with-you-and-why-do-you-care-about-that-anyway type of relationship as the contractor struggles to complete the task at hand. He really hated it that I was on site virtually every day during construction.

Less than halfway through construction it became clear that I needed to take over more and more of the duties of the general contractor simply to get things done. There were far too many days when I was the only person on site, waiting for subcontractors to show up. When they finally did, it was common for them to tell me, “I need to leave for a little while to go get some parts (or a tool).” That’s subcontractor language for, “I’ll see you in about three days.”

The expected four-month build out time turned into eight months. That meant four unplanned months of interest-only payments on the construction loan, four extra months of no income from the business, and another great big headache that had to do with cashing my IRA and taxes.

As I mentioned earlier, I had decided to use the IRA I’d been growing for 20 years as my startup capital. Since I was taking the money out before age 59½, I knew I would be paying a 10 percent penalty on the money, as well as having to pay income tax on the entire amount. But I had a way to get around the income tax.

A special provision in Section 179 of the tax code in 2004 allowed businesses to expense 100 percent of capital investments up to $100,000 in the first year. That was going to take care of the income tax on much of that huge (for me) chunk of change. But here’s the problem I ran into: the write off had to be taken during the year that the equipment was placed into service. And, since the build out took eight months, I missed putting the equipment into service in the same year that I cashed in the IRA. So, we wound up having to pay a huge amount of money to Uncle Sam in taxes for 2004.

That hurt! Oh, I still got to take the write off, but it was spread out over a much longer time period instead of when it would have helped the most.

My wife tells me an interesting phenomenon takes place right after giving birth. The pain goes away and is immediately replaced with a sense of wonder. And so it was with building the business. I opened the doors with virtually no money left and only a few hundred dollars still in the bank. But, since that opening day, there has been enough money coming through the doors to pay all of the expenses of the business including the debt service. It was necessary for my wife to continue working as a physical therapist to pay our living expenses for a while, but now we are living solely off the income from the business, which has grown to more than four turns per day. We also have built up a strong drop-off service, which generates about 30 percent of our gross sales.

I’d like to take sole credit for the success of Liberty Laundry, but I know in my heart that I had some divine help. Some of the knuckleheaded mistakes I made could have ended up with me living in a van down by the river, but somehow I was spared that fate. In fact, I’m in the beginning phase of building a second store, although this one will be in a leased space with a great location. I hope to be able to use the profits from that store to pay down my long-term debt more quickly. That is, if I don’t make too many mistakes.