An Investor’s Guide to Coin Laundries | Why a Coin Laundry? | Chapter 2
We’ve all seen the commercials on TV late at night, some man in a slick suit telling us that we can get rich quick by following his plan. Most of these investments rarely ever work. But, this is one time, where if you follow the plan, you can enjoy a profitable and secure investment.
It’s a question that has been asked over and over again. Why a coin laundry? What makes it such a sound business opportunity? It’s simple really. It can provide you with financial security, a strong return on investment and freedom.
Chapter 2 : WHY A COIN LAUNDRY?
MAKING YOUR MONEY – LOW OVERHEAD AND AN ALL-CASH BUSINESS
Unlike investing in a 401(k) or in real estate, the coin laundry industry is going to be continuously solid. After all, people need clean clothes. Even during an economic downturn, coin laundries are thriving and generally recession-resistant. With repeat business, low labor costs and an all cash business, there is a high return on investment.
Consider this. According to a 2008 presentation by the Coin Laundry Association, while 401(k)’s and other investments were down over a three year time period between 2005 and 2008, coin laundry values were up 20 percent annually. Now that is bang for your buck!
And when other industries and businesses are facing layoffs and reporting record losses, the coin laundry industry isn’t usually one of them. Instead many coin laundry owners are enjoying pre-tax profits between 25- and 30-percent, sharing an annual sales volume of nearly $5 billion industry-wide. Every year there are hundreds of new coin laundries being opened up by investors who want a piece of the pie provided by coin laundries and that profitability isn’t expected to change significantly either. Industry forecasters are projecting continued growth as society continues to change and population grows. Coin laundries are expected to play a greater role in providing a way for people to reduce time spent doing laundry, reduce a household’s environmental footprint and save them money on utilities as costs rise.
According to AHAM, the Association of Home Appliance Manufacturers, sales of home laundry equipment were down 6.8 percent in its 2008 report. That is a piece of the pie that savvy coin laundry owners are marketing to by highlighting the benefits of utilizing a laundromat to clean clothes.
ENJOYING THE RAPID RETURN ON INVESTMENT
There are many businesses out there that take years to break even. With owning a restaurant, for example, it could be a minimum of five years before you actually see a profit. But with a coin laundry, the overhead is lower and hitting your breakeven point comes a lot faster, meaning you will see a faster return on your investment and begin to enjoy the profits.
To calculate your breakeven point, take your fixed monthly costs divided by percentage of utilities and this will give you the sales you need to generate each month in order to breakeven.
Examples of fixed monthly expenses are rent or mortgage, labor if your laundry is attended, insurance, trash collection, etc. From this breakeven point, you would then need to deduct your variable expenses. These expenses include cost for utilities such as water, sewer and natural gas. They are considered variable as they are only incurred when your machines are in operation and generating revenue. In fairness, there are still utility costs associated with heating and cooling your store so one may argue that these specific utility costs should be counted as a fixed expense but I think you get the picture. We will get into a much more detailed discussion of the various costs of operating a vended laundry in future chapters.
Before finalizing your decision to open a new vended laundry, I recommend that you create a “ProForma”. Your regional distributor, financial advisor and/or finance source can help with this.
By definition a ProForma is: indicating hypothetical financial figures based on previous business operations for estimate purposes: a ProForma balance sheet.
The ProForma would typically include estimates of all associated fixed and variable costs of the business. It would also include estimates of monthly gross revenue.
For gross revenues, a common term in the coin laundry industry is “turns per day” (TPD). TPD refers to the number of cycles (turns) that each of your machines will average each day. It is not uncommon for a coin laundry to make 65% to 75% of their revenue from Friday through Sunday. Weekends are a busy time as many of their customers are not at work. Monday through Thursday are generally slower days in a laundry. Thus, the TPD calculation would adjust for this by taking the total number 13 of cycles in a full week and dividing that number by 7.
There are no guarantees to what your specific store’s turns per day will be. This is dependent on a number of factors. These include availability of other competitive laundries in the area, demographics of your trade area (more to follow in a later chapter), available capacity of your store, your ability to attract and retain customers, etc. Remember that in most areas, coin laundries already exist to serve the needs of the community. The majority of your potential customers are not sitting at home NOT doing laundry. Rather they are going to one of your competitors. Your success will be based on how many of those customers will now select your store as their favorite. Depending largely on demographics, we have seen regional TPD estimates of 3–7 with the norm being closer to 3.7. Areas with the highest turns per day are in heavily populated areas with a high renter concentration like many parts of New York City. Your consultant/distributor can provide their opinion based on their knowledge of other stores currently operating. We always recommend that you develop your ProForma using several different TPD calculations. And you should also do a ProForma that calculates the minimum TPD you need to breakeven.
With any new business, they have to ramp up their base of customers. We have devoted an entire chapter to this. On average, a new coin laundry may take 12–24 months to establish a base of customers who had been going somewhere else but now choose your store as the one they frequently use every week or month. The ProForma and financial estimates must take this into account. The TPD during your first year should account for growth in Year Two and beyond. Some investors like to break this down even further with monthly projections during the first two years. This is smart business thinking. It may take several months for your new laundry to reach the breakeven point and you want to make sure you have adequate cash reserves to pay all of your bills during ramp up.
Like all good investments, owning a coin laundry will not only create you a cash profit, but there is increased value in ownership. Let’s say you own your coin laundry for 10 years. To calculate the worth of your business over time, take the debt service paid in year 10, earnings in year 10 and add them together. Take that amount times three and you will have the cash value of your laundromat. In owning any business, an investment over time, along with proper management and continued growth yields a higher equity and owning a laundry is no different. As you would expect, there are several other ways to value a business prior to selling it. This is just one example.
FREEDOM OF OWNERSHIP
According to a CNN report, in 2001, the average American worker put in 1,978 hours — up from 1,942 hours in 1990. That’s time away from your family, and time that you are prevented from doing hobbies and activities that bring you pleasure. Wouldn’t it be great to have the flexibility to enjoy the life you want? Wouldn’t it be great to have the flexibility to take vacation when you wished rather than when the boss said you could? By owning and operating a coin laundry, you also have the freedom of time.
This is not a business where you have to work a lot of hours to enjoy a return on your investment. Most can be operated on a part-time basis. It’s easy-to-run. Many coin laundry owners spend the bulk of their time doing some light cleaning, preventative maintenance of equipment and/or cash collection.
As we continue through the different chapters we’ll be delving deeper into how you can enjoy the financial and time freedom afforded to owners of coin laundries.
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.
South Africa has many examples of both coin and non-coin operated laundries.
COIN OPERATED LAUNDRIES are generally self service when you provide an array of washers and driers for your customers to do their own laundry.
NON-COIN LAUNDRIES generally will be manned by an attendant who will receive and process your linen for a fee, and let you know when your clean linen will be available for collection. These types of laundries may oer other services like ironing/pressing, or a pick up and drop o service.
Non-coin seems to be the favoured choice of laundry investors in South Africa, but there are also many successful coin operated laundries around the country.
Some laundries employ a ‘hybrid’ model where they offer a drop o service with additional ad-on services, and also have coin operated machines for customers who particularly want to process their own linen.
The type of laundry you choose depends on your own needs and the needs of your customers.
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 coin laundry ownership.