5 Questions for Investors Purchasing an Existing Laundromat Business
Buying an existing laundromat is a great way to get your foot in the door, and the established customer base and immediate cash flow can simplify the start-up process. We've worked with many investors who opted to take over an existing coin laundry business rather than start from scratch because of these conveniences.
Even if a laundry business investment seems like a cinch, the decision still shouldn't be made lightly. A smart investor will ask questions to gauge the operating costs, machine condition, and the customer base before purchasing an existing laundromat business.
Due Diligence for Laundromat Buyers
You can help safeguard your investment when buying a laundromat by doing your due diligence, meaning you investigate the business's finances and operations for opportunities and red flags. Speak to the seller or their real estate agent, and discuss the potential with your agent.
Because our commercial laundry experts have been in this industry for many years, they’ve seen how easily some questions can slip from investors’ minds. To help you tick all the essential boxes for your purchase, we’ve provided the top five questions you should ask the sellers before buying an existing laundromat.
1. What Are the Average Monthly Operating Costs?
A laundromat’s operating costs can vary greatly, from a few thousand to $10,000, depending on the location, size, and services. The rent and utilities are usually the most significant expenses, but you also must consider labor and wages, insurance, plus intermittent expenses like routine commercial equipment maintenance agreements.
One benefit of purchasing an established laundromat business is that you will have access to months, if not years, of records that can help you accurately estimate your expenses going forward. Scrutinize recurring overhead costs (rent, utilities, employee salaries, and insurance) as well as less common expenses, such a snow removal or security services. Understanding the previous owner's monthly expenses will help you create an accurate financial plan, and it can uncover any red flags where upgrades or improvements may be necessary sooner rather than later.
2. How Old Is the Laundry Equipment?
Commercial washers and dryers are built to last, but that doesn’t mean they don’t wear out over time, especially with high-volume use. What you’ll want to know before buying a laundromat is what the business needs and when. This will help you budget for new equipment or determine if it’s best to re-tool before opening under new ownership.
3. What Repairs Have Been Made on the Laundry Equipment?
This is an important question because frequent repairs can be a signal that machines are wearing out, and poorly maintained commercial washers and dryers are prone to issues and unexpected downtime. While the owner can provide some anecdotal information on the machine condition, you should also request all service records and review these for:
- Routine maintenance records for all washers, dryers, and equipment
- The personnel entrustted to maintain or service the machines (an experienced laundry service technician following the manufacturer's recommendation is preferred)
- Machines with excessive repairs or frequent downtime (signals that it may soon be time to replace at least those units)
- The dates of larger repairs or upgrades tht may indicate larger expenses are handled for the time being
4. Are All the Machines and Other Equipment Paid For?
Financing laundromat equipment can be a reliable way to upgrade machines or purchase new equipment, so many sellers may have existing loans or liens that investors should know about. After taking ownership of the business, ask for statements and proof of ownership or loan terms to ensure they align with what the previous owner promised. While the washers and dryers will likely be the largest debt, don’t forget to also inquire about furnishings and other laundromat supplies.
5. What Are the Surrounding Demographics and Current Customer Base Like?
The laundromat’s location, ideally near your target market, is one way to determine whether a business is worth buying because this is one thing that you can’t change after the purchase, and it can make or break your success. A profitable area for a laundromat will be home to a large renter population with tenants in low-to-middle income levels, including college students and families with children. Selecting a laundromat location and understanding what your target market expects for services, amenities, and wash and dry price points can help you develop a plan for success.
While you can research the area by driving or walking around, chatting with local businesses, reading crime reports and newspaper articles, and statistical reports, it's always nice to get a perspective from previous owners and any real estate or leasing agents. Hopefully, they'll share information about existing customers, new developments in the area, and other unique insights that only an owner would have. The more you know about who you're marketing to and serving, the better off you'll be.
What to Know Before Buying a Laundromat
Before buying an existing laundromat, you’ll want to know why they are selling, which could be a desire to pursue new life goals or that the business has become unprofitable. If it’s the latter, you’ll need more information. If you don’t get a reliable answer from the seller’s real estate agent, dig deeper. The questions above will get you some direct answers on the financials, equipment, and customers, but you should also independently assess the health of the business by:
- Reviewing all financials, including the operating costs and the income statements, to determine if a laundromat is profitable
- Asking a laundry equipment repair technician to inspect the washers and dryers to identify issues proactively, before malfunctions cause downtime
- Checking for debts or liens by reviewing financial statements and vendor balances that could become your financial responsibility after ownership has changed hands
- Networking with other local business owners, laundry equipment suppliers, and competitors to find out if there are known causes for concern regarding the business
What's Next?
If you're interested in opening a new coin laundry or an existing business, our team is here to help. We can answer questions regarding financing commercial laundry equipment and whether potential businesses are good investments.
Here at Martin-Ray Laundry Systems, we work with laundromat operators and investors all across Colorado, New Mexico, Wyoming, West Texas, or western Nebraska; we would love to share our expertise with you. Contact one of our experienced commercial laundry experts to chat about how to make your dream laundromat business a reality.
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