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.
In this post we’ll talk about the fourth pillar of laundromat due diligence: Look for value-add opportunities. When doing due diligence on a laundromat, you’ll want to be looking for ways that you can improve the laundromat and add tangible value to the laundromat when you take over. This will not only improve your net income, it will also, as we will see, help you build your net worth in the form of equity in your business.
The primary ways to make more money with your laundromat and, therefore, to make your laundromat worth more are to improve management, add revenue streams, and offer new services to customers. Within each of these 3 main categories are many options, and you can combine multiple options to supercharge your laundromat’s growth.
We’ll take a look at each of these three options and at the end I’ll tell you where you can get a checklist of ways to add value to your laundromat to make it worth more money. But first, let’s take a look at the numbers briefly to see how you increase the price value of your laundromat.
How to Increase Your Laundromat's Price Value
I made a video of how you can make more money with your laundromat. Some of the ideas in it overlap with this blog post, but some are unique. It’s worth watching to spark some new ideas on how you can put more money in your pocket every month and simultaneously build equity in your business.
The Numbers of Laundromat Valuation
Let’s do a brief discussion of how laundromats are valued so we’re all on the same page. If you already have a firm grasp of laundromat valuation, you can skip ahead to the meat of how to stuff your pockets.
Laundromats, generally speaking, are valued based on their performance. The way we measure a laundromat’s performance is through a number called the net operating income (NOI). The NOI is the gross (total) income of a laundromat minus the expenses, not counting taxes and loan payments. This number represents the performance of the laundromat and it is what we base the value of the laundromat off of.
To the NOI, we apply a multiplier. This multiplier is usually somewhere between 3.5 and 5 times the NOI. To give an overview of how to figure out where in that range the multiplier for a particular laundromat should fall, you’re going to look at two main things:
- The age and condition of the machines- older machines are worth less (lower multiplier), newer machines are worth more (higher multiplier). Simple.
- The length and terms of the lease- longer leases are better and more valuable for a laundromat (higher multiplier), shorter leases are less valuable and riskier (lower multiplier). And, obviously, a higher rent is bad and a lower rent is better.
With those two pieces of information coupled with the laundromat’s NOI, you should be able to get pretty close to a solid valuation for the laundromat. The equation is simple once you have all the right information.
NOI x multiplier (3.5-5)= Laundromat’s Price Value
Increasing the Laundromat’s Equity
Now that you have the basics of laundromat valuation, let’s talk about the 3 ways to make your laundromat worth more. Each of them will focus on either improving the NOI or increasing the multiple. Those are the two ways we add value to a laundromat and build equity in our business.
1. Improve the laundromat’s management
Often times the lowest hanging fruit when it comes to adding a lot of value to a laundromat is improving the management of the laundromat. There are a few basic things you need to do to keep your laundromat running smoothly and to keep your customers happy. Some of the basics are:
- Keep your laundromat clean
- Keep your laundromat safe and well-lit
- Have friendly, welcoming, and helpful attendants
- Keep your machines in good working order
- Ensure you have change available or your card/app payment systems are functioning properly at all times
- Continually look for ways to improve your business in both big and small ways
There’s more to running a successful laundromat business than that, but if you take care of those basic things consistently you’re going to be ahead of the curve.
Managing a laundromat so that customers have a better experience can be a great way to build goodwill with your current customers and to attract and keep new customers. This will inevitably improve your NOI, and, as we know, therefore increase the value of your business. If you need help managing your laundromat business take a look at Cents. Cents is a business-in-a-box laundromat management solution that allows you to elevate the level of service you can offer to your customers while cutting down the time it takes to do it.
2. Add revenue streams
Once you have improved your management of the laundromat or improved the management of the previous owners, you can start looking for ways to add more revenue streams to your main self-serve laundry business. Adding more revenue streams will contribute to increasing your NOI and can increase the value of your laundromat pretty quickly with some small additions.
Let me give you a small example to demonstrate how powerful this can be.
Let’s say you add a gumball machine to your laundromat. Kids love it, obviously. I have a little pinball gumball machine in one of my stores and my own kids love it. Let’s say that your gumball machine is nothing crazy, but it brings in about $85 of net income per month. That’s just under $3/day. Seems pretty doable.
Over the course of a year, that comes out to about $1,000 of net income that goes straight to your pocket. You can have yourself a nice little weekend getaway, buy yourself a pretty decent gift, or invest in a course. Whatever you want to do with that $1,000, the world is your oyster. You’re $1,000 richer that year.
But, since your NOI went up by $1,000, the equity in your business increased by 3.5-5 times that $1,000. So now your business is worth somewhere between $3,500-$5,000 more! That’s a double whammy!
I give this example to show how even adding a small amount of income can make noticeable improvements in the value of your laundromat. And there are many revenue streams you can add to your laundromat, both big and small, to increase not only your net income but also the equity in your laundromat.
3. Offer new services
Offering new services can be the biggest opportunity to add income to your laundromat business, and therefore to add value to your business. Services like a drop-off laundry or laundry pick-up and delivery allow you to serve a new demographic of people and allow you to draw from a larger customer pool by extending your laundromat’s radius of influence. Starting a laundry drop-off, or wash-dry-fold, service or a laundry pick-up and delivery service can be a bit undertaking, but the payoff can be huge.
The possibility for growth can be essentially unlimited, but these services do increase the complexity and management needs of the business. Each owner needs to weigh for themselves if they want to offer these services, but the potential for growth is undeniable. These services have been growing rapidly over the last couple of years and, I suspect, will continue to do so. If you’re interested in how to add these services to your laundromat the easy way, check out this webinar I hosted with two rockstars from Cents.
There are other services you can offer, too, that may not require as much management. For example, an alteration service is a common laundromat service offering if you have someone who is able to alter clothing. Another example would be adding a small convenience store or coffee shop inside your laundromat. The opportunities are only limited by your creativity.
Look for the Opportunities
There are many opportunities to add value to a laundromat that will either increase the NOI, raise the multiplier, or, ideally, both! Be looking for ways to do those two things and watch as not only your income grows but also as your net worth grows with the equity in your business.
To get a free checklist of value-add opportunities for your laundromat, join the free membership and check out the Member Resources page in the top menu when you’re logged in. There you will find the free value-add checklist and a whole lot of other free resources to help you find financial freedom through laundromat ownership!
