By Brian Brunckhorst | Aug 20, 2012
When a coin laundry business fails, that failure typically is the result of one of the five following reasons:
I believe the number-one reason why coin laundries fail is poor management or neglect. Often, those who buy laundromats do so with the belief that all they need to do is collect the money once every week or two. Unfortunately, that couldn't be further from the truth. Although these businesses can be (and many are) run part-time, they are real businesses that require work to be performed on a regular basis. Failure to perform this work will result in a loss of income.
There are several elements that all laundries need to have to be successful. They need to be clean, well lit, safe, inviting, have a good selection of equipment (that is in good working order), have ample parking and competitive pricing. It is up to management to make sure that customers are happy with the quality of each of these elements within their control. Lack of attention will negatively impact the customers’ perception and overall appeal of a store.
There are several ways an owner can monitor customer perception of his or her store. One of the easiest is to check online review sites frequently. Sites like Yelp and Google Maps will provide owners with unbiased feedback and point out opportunities for improvement.
Above all, keep your machines in good working order and be sure your store is clean. Also, consider running some promotions benefiting the community, such as a revenue share for the local high school band or athletics department, which they can promote it. You would be surprised how much extra revenue you can generate by giving back 20 percent to a local school or church.
One of the biggest fears many laundry owners have is the possibility of a competitor opening up a store across the street – and there is good reason for that fear. A new store often will be larger, feature more amenities and boast newer equipment. Imagine having the same expenses, but then losing half your revenue or more. That would be enough to put many, if not most, laundries out of business.
The key to avoiding a new competitor taking aim at your business is to make your store an undesirable target. This means keeping the store fresh and up-to-date, taking care of the customers and having great reviews. Don't wait until all of your machines are 20 years old before you replace them. Most potential investors would rather compete against a rundown, mismanaged store than go head to head with the neighborhood leader.
The lease is one of the largest single expenses a self-service laundry has. There are three big concerns when it comes to the lease, each of which can sink a business. These include high rent, uncontrolled CAM expenses and unwillingness on the part of the landlord to renew your lease.
With regard to rent, when your monthly payment represents too large a percentage of your gross income, it will eventually suck all the profit out of your business. The optimum time to take care of the lease amount is before you buy the business. However, with the large amount of commercial vacancies in many cities, if you find that your store’s rent exceeds 30 percent of gross income, it’s worth the time to talk to the landlord and try to renegotiate for a lower rent payment.
As for CAM (or common area maintenance) expenses, it’s always best to negotiate a cap of 25 percent or less of the total rental amount. If you are considering buying a store without such a cap, you may discover that your CAM expenses can – in some cases – actually exceed the rental amount. Remember, any expense directly affects the bottom line, and leaving this one unchecked could wind up costing you much more than you bargained for.
The third prong of a lease that can sting you is when your landlord refuses to renew at the end of the lease. Again, the best time to take care of this is in the beginning. Always be sure you have options to renew your lease with predefined terms, if possible. When exercising an option to extend your lease, ensure that you get a new option to replace the one you are exercising. Even if you have to pay for an option, this is far better than being without one.
Lack of Capital
There is nothing worse than spending the money to buy or build a business, but failing to secure enough starting capital to carry the business until profitability. It takes money to fill the change machines, pay deposits on utilities and post the security deposit. For a new store, it could be six months or more before the business is profitable. Even when buying an existing laundry, it will take a month or two before you have enough cash in the bank to handle unexpected expenses – that is, of course, if the store is making money when you buy it.
And this leads us to…
Failure to Properly Analyze the Business During the Purchase Process/Lack of Due Diligence
It is critical to properly analyze the business prior to purchasing it. You need to not only verify the seller’s claim of reported income, but also account for each and every expense the business generates to get an accurate picture of the laundry’s performance. Too often, buyers are lead to believe the business they are buying is making more than it really is. And, in the worst-case scenario, the store you thought was making money every month is actually losing money every month – and you, as the buyer, need to come up with the shortfall, sell it or go out of business.
The good news: with the proper education, most people can learn how to properly analyze the business. There are several good books and courses on the market that can teach you these skills.
My other suggestion is to consider hiring an expert to go over the deal. Since the value of a self-service laundry is based primarily upon the net operating income, even a small monthly shortfall of $500 could change the value of the business by as much as $30,000 or more. The cost of an independent laundry consultant is far less than the cost of making a mistake. Plus, he or she can give you a second set of eyes with an unbiased perspective.