The economy has definitely slowed down the progress of new laundries, but this is just more reason to look into finding an existing coin laundry that is already generating cash flow.
Finance companies have tightened their requirements for investors in new coin laundries, and unless buyers have an excessive cash reserve to float the business during the ramp up, it will be almost impossible to build a new coin laundry in 2009 and beyond.
Banks want investors to have the build-out costs covered, as well as additional properties or property to tie up to secure the deal. The equipment and business are used as collateral to secure the financing.
So if a new laundry costs $1 million dollars, you're going to need the cash outlay for the construction (say, $300,000), and the remaining $700,000 will be equipment financing. This means that you will need 30% cash up front to build a new coin laundry. That’s not chump change, nor is it enough unless you have the additional property to offset the deal and secure the bank’s requirements to approve the financing. Plus you’ll still need cash reserves to hold you afloat in the beginning.
The good news is that although banks want buyers to meet the same requirements for existing laundries, they can purchase a lower-risk opportunity that requires less cash, because existing laundries, in most all cases, cost far less for the investor.
Existing laundries often have leaseholds grandfathered in, so buyers end up paying for three to four times the net cash flow for an up-and-running business and save tons of money. Lets say that a laundry has a net cash flow of $75,000. You’ll likely pay $225,000 to $300,000, and the bank would need 30% of these numbers. This saves more than two-thirds of the cash out of pocket compared to the new laundry scenario.
Fortunately, the current state of our economy has not affected the fact that people need to cover the bare necessities such as eating and washing clothes. Many of my customers have maintained their margins, and others who aggressively execute their marketing plans are actually seeing increases in revenue.
The future of the industry looks bright, with a higher caliber of new laundry investors who give this business the level of professionalism it deserves. I get great pleasure witnessing the passion and commitment that’s so needed in any new business.
You’ll see that years from now, our industry will evolve into a first-class atmosphere with higher-end service and amenities that transform laundries into places for social events that cater not just to laundry users, but also to communities as a whole.