This is Chapter 1 of the book ‘Investor’s Guide to Coin Laundries’, compiled in 2012 by Jay McDonald, Vice President, Distributor Sales for Alliance Laundry Systems.
An Investor’s Guide to Coin Laundries | Chapter 1 Common Questions
Alliance Laundry Systems is the largest manufacturer of commercial laundry equipment in the world and has over 50 years of experience in helping investors just like you, get started in the coin laundry market. This book is a compilation of experiences, ideas and input from hundreds of successful coin laundry owners and distributors from all over the world. Taking data and industry knowledge, it is a road map to help you succeed. At the end of it, you will have a general understanding of the industry and what it will take to operate a successful business.
A NOTE ON COIN-OPERATED LAUNDRIES IN SOUTHERN AFRICA
In Southern Africa, coin laundries are typically found in flats or townhouse complexes, caravan parks, holiday resorts and universities. Historically coin-operated activation systems have supported these laundries. However, this system is largely being replaced by our LaundryConnect Cashless Payment Gateway, which is convenient, hassle-free and the way of the future. It is easy to integrate or replace your existing coin mechanism in order to offer cashless payments or to use a card to activate machines.
Short Answers the Most Common Questions
In the first chapter, Jay McDonald answers some of the basic and most common questions asked by new investors.
Chapter 1 : SHORT ANSWERS TO THE MOST COMMON QUESTIONS
ONCE YOU OPEN A LAUNDRY, DO THEY PRETTY MUCH RUN THEMSELVES?
Definitely not — however, time required of the owner may be as little as four-five hours per week. Many owners will hire an attendant to open and close, keep the store clean and assist customers with their questions. This helps a lot with customer retention, too.
HOW MUCH OF MY TIME DOES A COIN LAUNDRY REQUIRE?
Unlike many other businesses such as a restaurant, a coin laundry is not a 90 hour per week job. At a minimum, the owner needs to spend time collecting the money and paying the bills. Some owners may spend as little as three hours per week at their store and employ an attendant for keeping the store clean, assisting customers and notifying a service company if any repairs are needed. Other owners choose to do many of these tasks themselves. As you learn more about the business from your distributor, they can tell you which activities should remain with you and which can be done by others in your employ.
HOW MUCH DOES IT COST TO OPEN A LAUNDRY?
There is no single answer of course. This will depend on the size of the location, equipment mix, how much construction work is involved, cost of lease, etc. What is more important is determining the optimal size of the store for the market demographics. The local expertise of your authorized distributor can be invaluable.
HOW MUCH MONEY DO I NEED?
Great question and the answer depends on the size and cost to build your new coin laundry. Typically the investor will put about 30 percent into the initial costs of construction and equipment and finance the balance. Banks and finance companies look for that kind of “skin in the game” for any new business. You should also have additional cash available that could be used while your new laundry ramps up its customer base and gross revenue until you have reached your initial breakeven point.
IS A LEASE BETTER THAN A PROMISSORY NOTE?
My personal preference is a promissory note where I have the full title to the equipment and can start depreciation for taxes. Plus, there is typically no prepayment penalty so as my business ramps up, I can pay off existing debt faster. An equipment lease will usually not offer one or both of those.
HOW MUCH MONEY CAN I EXPECT TO MAKE PER MONTH / PER YEAR?
As in any business venture there is always inherent risk involved. Profit is influenced by variables such as utility costs, location, vend price, equipment mix, etc. However, your distributor and other local experts can provide you with guidance and assistance in developing proforma financial analyses before you invest in a vended laundry.
HOW MUCH MONEY WILL I MAKE?
Lots! That’s what you wanted to hear, right? The actual answer is that with any investment, there is never any guarantee and we won’t make one here either. However, there have been many surveys in industry trade magazines of actual owners and the range reported is typically 18-28 percent. But do your homework first by yourself and with your authorized distributor. Location, demographics, store size, product mix and competition are primary areas to focus on.
HOW DO I FIND A GOOD LOCATION?
Your local authorized distributor is your best resource in finding a suitable location for your vended laundry. Their years of experience in your area can guide you in determining a good location for your investment. In addition, each of our distributors have access to our demographic research data, which can further aid in securing a location that is right for you.
HOW DO I KNOW THIS LOCATION IS GOOD?
There are no guarantees and at the end of the day, you have to make a decision. Try to get as many opinions as possible so that your decision is an informed one. That would include a demographic analysis, discussions with your distributor, banker or Alliance Laundry Systems Financial Services, local business leaders and other trusted advisors. Spend time studying soon-to-be competitors from an end-user perspective — why do people go to those stores now and what would your store have to do to attract them and retain them?
HOW DO I KNOW WHERE TO LOCATE MY STORE?
This is an area where a good distributor can be invaluable. Many times, they already have some potential locations that meet their criteria for a good store. Ideally, a high percentage of renters is desirable. And larger average family size equals a need for larger capacity equipment not found in the home. Also look at all of the competitors — why would their current customers move their business to your new store? What makes you different and more desirable? Can the location generate the revenue you need to cover your costs? You may like a particular AAA location but the rent could be a deal breaker.
HOW OFTEN WILL I NEED TO PURCHASE NEW MACHINES?
There is no single answer, but if you select true commercial quality machines in the beginning, and also follow the periodic maintenance recommendations, then averages of 7-10 years for small capacity units and 12-15 years for tumblers and washer-extractors are indeed possible.
HOW MANY LARGE CAPACITY WASHERS AND DRYERS DO I NEED?
Typically, more of your net profit will come from the washers than from your dryers. When designing your store, you want as many washers as is feasible. Determining the proper number of dryers is a mathematical ratio of washer capacity. I like a 1-1 ratio in pounds of capacity. And remember that perhaps 65-75 percent of your total revenue may happen from Friday through Sunday. The most common “in hindsight” comment I hear from new store owners is that they did not put in enough dryer capacity and so had bottlenecks during peak periods which drove away customers. It’s much easier to add in more dryers before the store is built than after the store is opened. As a side note, some commercial dryers will dry an average load faster than others. Ask your distributor for any performance testing they may have. For best throughput, you want a fast cycle washer and dryer during your peak traffic periods.
SHOULD I SELECT A COIN OR CARD PAYMENT SYSTEM?
Each vending option has its own strengths and weaknesses and requires more discussion. A coin system is usually less expensive but your vends are typically priced in 25 cent increments. A card system allows pricing in penny increments which is a great benefit and competitive advantage. If current competition uses cards and can price in penny increments, you probably should too. Card stores do better if they are attended as customers may have questions, especially in their first visit. The majority of unattended stores use coin vending. Great topic of discussion with your distributor!
WHY DOES THIS STORE HAVE TO BE SO BIG?
It doesn’t. Some rural areas may only support a store of less than 1,000 square feet while other areas require larger stores to even be noticed by potential customers. Store size, location and design is an art and definitely an area where the distributor’s local expertise is invaluable.
HOW CAN I LEARN MORE?
ABOUT THE AUTHOR
JAY McDONALD has been active in the laundry industry for over 30 years. He is the Vice President, Distributor Sales for Alliance Laundry Systems, the largest manufacturer of commercial laundry equipment in the world. He also served on the board of directors for the Coin Laundry Association and received the Distinguished Service Award “in appreciation of his leadership in furthering the welfare and best interests of the coin laundry industry” in 2009.
As your equipment distributor — the most important partner and most valuable resource you will ever have — we encourage you to get in touch so that we can help guide you through the exciting and financially rewarding industry of laundry ownership.