RIPON, Wis. — There are many benefits to owning your own business, especially a vended Laundromat, as it provides flexible hands-off management and a profitable source of income. Opening a Laundromat business requires some capital funds, but it doesn’t mean you have to use your life savings to front an all-cash investment.
Leveraging the right financial partner can stretch your dollar far beyond what you could get if you were to invest all necessary funds yourself. Whether you are a first-time store owner or looking to expand your existing business, partnering with a lender who is invested in your success is a smart business decision – one that allows you to achieve a higher return on your investment (ROI).
INVESTMENT OPPORTUNITY
Those who choose to invest in a Laundromat business have the potential to see a remarkable ROI compared to other industries. Laundromats in the U.S. see an average overall ROI between 20% and 35%. This average, which has remained consistent for more than 60 years, is considerably higher than other business opportunities, including convenience stores, car washes, franchises, self-storage and even stock market investments.
While these alternate opportunities can undoubtedly provide an investor with a respectable return, they often are marred by expensive start-up and labor costs, higher failure rates, an extensive inventory, increased competition and the tendency to be dictated by the ebbs and flows of the economy.
A Laundromat business, when entered into correctly with the right partners, boasts up to a 94.5% success rate (from Speed Queen Financial Services, based on number of not charged off loans per laundry divided by total number of loans originated, January 2001 to June 2013). Why? Even when other businesses fail due to a less-than-ideal economy, the laundry industry remains recession-resistant. Consumers will always need clean clothes, even during hard times, which is why Laundromats don’t experience the drastic downturns that many other businesses face during a recession.
Additionally, owning a Laundromat provides you with independence and the flexibility to run your store(s) how you see fit. You can set up your store and operate it on your own terms according to your schedule and personal goals. An all-cash business model requires Laundromat customers to pay up front for laundry services, saving you time, money and headaches on laborious accounting tasks. Finally, the right equipment with advanced controls can set you up for largely hands-off management and the ability to operate your Laundromat(s) remotely.
With modest start-up costs, minimal inventory requirements and the generous tax advantages that come with an equipment-heavy business, it’s easy to see why investing in a Laundromat is a great choice.
BENEFITS OF USING MANUFACTURER-BASED LENDER
Once you decide to invest in a Laundromat, you must determine how to best finance the business. But don’t worry; you don’t have to do it alone.
There actually is a “right amount” of debt to incur and funds to borrow from a financial partner that can increase your overall cash-on-cash return.
A cash-on-cash return is the ratio of annual before-tax cash flow to the total amount of cash invested, and it is often used to evaluate the cash flow from income-producing assets. A cash-on-cash ROI can be increased by accepting a lender’s cash and limiting your own personal cash investment.
Your equipment manufacturer’s finance operation is intimately familiar with the industry and understands the Laundromat business, as well as the investment opportunity it provides. It’s more likely than commercial banks or even the Small Business Administration (SBA) to provide you with the funds you need, and it will work with you to determine that “right amount” of debt to incur.
Because it focuses exclusively on the laundry industry, an equipment manufacturer’s finance operation understands the timing that it takes to open a successful Laundromat – from start-up to profitability – and can work with you to customize a financial package, including scheduling and/or staggering payments or an extended interest only period.
Financial lenders who are not familiar with the laundry industry may be more hesitant to loan money, as they won’t necessarily understand the nuances of the business, return potential and investment opportunity, and they may require you to pay them back sooner.
If you opt not to partner with a lender to help pay for your Laundromat, your personal funding may not cover the full investment, or it may only be enough for one store; this limits your ability to expand your business with additional stores and consequently maximize your ROI.
Partnering with an industry lender lets a Laundromat pay for itself and generate income for you, also allowing you to stretch your investment across multiple locations to develop your portfolio more quickly. By leveraging your financial partner’s contribution, you can open several stores and let them pay for themselves, which will allow you to see a greater ROI sooner.
INVESTED IN YOUR SUCCESS
Your lender should be a partner who can offer full-scale support and will counsel you through every step of the process, from location analysis to equipment selection and beyond. To maximize your ROI, you’ll want to partner with a manufacturer that works with a nationwide distribution network that provides industry and location analysis expertise.
Once you’ve chosen the right financial partner, it should work with you on every aspect of your business, beginning with location review. It should help you understand the market of a potential store location (including demographics, competitors, etc.) and if a store is a good investment or not based on revenue projections. When it comes to financing the location that’s right for you, your lender should present you with specific financial options to put you in the best possible situation to succeed. An equipment manufacturer-based financing program can be the right partner, as it can work with you to create personalized financial packages and ensure you have the programs and tools to create the best possible return.
Even if you’re not planning on opening more than one store right away, it’s important to have a lender that has the capability to offer acquisition and equity financing.
Acquisition financing offers loans to acquire existing stores that can be coupled with new equipment financing for the Laundromat, whereas equity financing can be used to assist with construction costs for a new store or remodeling costs when re-equipping and revamping your current store.
Both of these options allow you to grow your businesses more quickly. These financial services may be more difficult to obtain with a traditional bank or SBA but are important in providing store owners with more opportunities for growth and a high ROI.
At the end of the day, you’ll want to partner with a lender that can help limit your cash investment, grow your portfolio and increase your cash-on-cash return. Your financial partner should be able to customize a financial package to your unique situation and needs to help your store become successful.
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].