CHICAGO — You have the coin laundry in mind, but what about the financing? Whether you are building a new coin laundry or purchasing an existing store, you need to know upfront what you’re getting into, from a financial perspective.
Let’s discuss some of the conventional financial options.
You must not allow yourself to let anyone oversell you, causing you to become overleveraged and undercollateralized, especially right out of the box when you are taking a run at developing a new coin laundry. The purchase of a new coin laundry is basically a two-fold deal.
First, the construction/leasehold improvements is an out-of-pocket, hard cash outlay, which means having money in the bank reserved to cover these upfront capital expenses. Sure, there are creative ways to leverage a deal that may allow you to take an equity position on your home and/or other property, but you still need to get the equipment financed, and that’s the second part of your deal.
Keep in mind that the soft costs also include your “slush fund” for startup costs. What are some of these costs? Here are just a few to think about:
• an insurance retainer
• utility deposits
• a landlord rent deposit (can be one to three months)
• quarters for changers (minimum $2,000)
• a marketing allowance,
• and working capital to carry you through the ramp-up period to break-even point — it could be up to eight months of reserve.
Most equipment companies offer similar financing options that will almost always allow you to get 100% financing on all the equipment needed to get your laundry business up and running. The concern is, again, that you put yourself in a position of becoming overleveraged. It is important that you understand the financial analysis of cash flow vs. debt ratio. Do not borrow more than you absolutely need and do everything possible to keep your debt ratio as low as possible, therefore increasing your potential for positive cash flow.
I touched on this briefly above, but it’s crucial to remember that when making the final decision to build, you need to understand that a new coin laundry does not have an immediate positive cash flow, so make sure you have the liquid cash reserve to cover you until you get into the black. I have seen many investors who find themselves in trouble financially because either they were oversold or they did not know how to plan. Simply, they weren’t prepared for this particular type of business venture. Also, make sure you are working with someone who has an extensive list of credentials and who has a proven and successful track record in the development of new coin laundries.
PROCEED WITH CAUTION
When purchasing an existing coin laundry, the bank will seek some basic and fundamental requirements in order to execute and secure the loan. In most cases, conventional lending will require a 25% down payment in cash, and the bank will also expect to secure the balance by putting a lien on the business and having an additional piece of property to guarantee the note. Keeping in mind that you want to borrow as little as possible, if you have the cash, don’t be afraid to bump up your down payment so that you will have less debt service and more profit.
There are other forms of financing, but what I have covered is the traditional route, and in most cases, the most effective way to ensure that you will complete the deal in a timely manner. I’m sure that many of you reading this article are educated people, and good business people. With that being the case, you should not (and please take my advice on this) attempt to start a coin laundry on your own. It breaks my heart when someone comes to me after the fact with a business that is in trouble, and asks me to help them turn around what, in many cases, is a disaster. Even with all of my years of experience in this industry, not even I can walk on water. I will tell you again: Make sure you are working with someone who has been up the mountain and back, so that you can properly build your coin laundry business and financial future.
This industry can be very fruitful and rewarding, but you must build your business on a solid foundation and incorporate the building blocks that are necessary to ensure the best possible results for success!