This is a sponsored post by Cents. Find out what Cents can do for your laundry business here. All reviews and opinions expressed in this post are based on my personal view.
Laundromats are such an unassuming business. They’re usually not flashy. They mostly blend into the communities in which they live. In fact, many of my coaching clients have never even been in a laundromat before. They’re usually not the top of the list when people think of businesses to start or buy. On top of that, I see and hear a common narrative that laundromats don’t make money. I thought I would set the record straight and answer the question as to whether laundromats make money or not.
Because of the way laundromats are valued, most existing laundromats purchased make money. In fact, when purchased correctly, laundromats can yield a return of 20-25% or more. However, not all laundromats make money. Poor management, being overleveraged, and a bad lease are the most common causes of laundromat failure.
How Laundromats Are Valued
I made a short video on how much money laundromat make. It will give you an overview of how much money laundromats make in less than half a minute!
In order to know why most laundromats make money, it’s important to know how laundromats are valued. The valuation of a laundromat is inextricably tied to how much money a laundromat makes. Let’s do a quick overview of how they are valued and how that valuation translates to a business profit.
Laundromats are valued by taking the net operating income (total income minus expenses, not counting loan payments or taxes) and multiplying it by a multiple (the average is 3.5-5x). For more details on laundromat valuation, join us on one of our FREE weekly live webinars! Because the value is based on the net operating income (NOI), buying a healthy laundromat should yield you a profit from day 1.
For example, if a laundromat nets $100,000 and you buy it for $400,000, you will return a 25% return on your money (not counting tax benefits, equity growth, and more!). That is a a valuation of 4 times the net income. At a 5 times multiple, which is near the top end of valuations, you would purchase the laundromat for $500,000 and return 20% on your money.
Because laundromat values are based primarily on a multiple of the net income, when you purchase a laundromat, you’re purchasing cash flow. This is why most laundromats make money from day 1 of a new owner taking over.
How Much Money Laundromats Make
Ok, since the price you pay for a laundromat is tied to it’s profits, your laundromat should be making money. But how much money will your laundromat make? The answer is, of course, it depends. A laundromat should start out making somewhere between 20-28% (3.5-5x multiple of the net income) unleveraged. This is a great return on money for any investment. It can really allow you to grow your cash flow and wealth very fast. However, there are things you can do to increase those returns even further.
Here are three things you can do that can dramatically increase the amount of money your laundromat makes.
- Improve your laundromat’s marketing. The best way to increase income in a laundromat is to acquire and keep new customers. Developing a marketing plan to get more customers in the door offers the potential for a big bang for your buck.
- Use leverage when you purchase your laundromat. Using leverage may decrease your monthly cash flow, but it also decreases the amount of money you need to invest up front. When applied properly, leverage can boost your return on investment in your laundromat business.
- Serve customers better. Whether it’s upgrading machines, training employees better, or implementing a software management program like Cents to help you manage your business better, serving your customers better will not only attract new customers and hold current customers longer, it will also allow you to charge more for your service. Wins all the way around!
So, when you purchase a laundromat, you should expect somewhere between a 20-28% return on your investment at a minimum. Laundromats make very good money when bought correctly and run well.
Why Some Laundromats Don't Make Money
Not all laundromats make money, however. If you let people know you’re interested in buying a laundromat you’ll inevitably hear a skeptic explain why a laundromat is a bad investment. They may cite high repair costs, expensive leases, or any number of other reasons laundromats “won’t work” as a business. While I won’t argue with any of their points, I’ll just direct you to the Laundromat Resource Podcast where I interview laundromat owners who are finding great success with the business. Listen to the people who are doing it, not those who aren’t!
With that said, there are three common reasons some laundromats don’t make money.
- Buyers don’t do thorough due diligence and purchase the laundromat at an incorrect valuation. Valuing a laundromat correctly is crucial to ensuring your laundromat makes money. If you don’t value it correctly, you’ll pay too much and won’t have the income you thought you would have to provide you with your target return.
- New owners sign a lease that is too high relative to gross income, too short, or has hidden “gotchas” that are overlooked. A bad lease can saddle owners with unreasonably high expenses and/or restrictions on their business, leading to eventual failure.
- The final reason many laundromats don’t make money is due to poor management. Neglect, lack of reinvestment in the business, and poor employee training can all siphon profits from a laundromat and leave the owner losing money.
Do Laundromats Make Money?
Laundromats are very lucrative businesses when purchased correctly and managed well. You can expect a minimum of a 20-25% return on your investment, with the potential to increase that significantly through better business practices outlined here.
