How to Start a Laundromat
Laundromats have a unique business model, with customers doing most of the work themselves, while the laundromat supplies the machines they need. With issues like managing inventory almost entirely eliminated from the business, laundromats can create an intriguing business model. If you’re looking to open a business where your income will stay steady year-round, even during recessions, then it may be time to start saving up to open your own laundromat.
Laundromats provide customers with the use of their washing machines and dryers. The machines may be coin-operated or card-operated, allowing laundromat attendants to focus on solving problems rather than on taking payments and monitoring machine use. Some laundromats are located in freestanding buildings, while others may be located within apartments or college dormitories. No major laundromat chains or franchises dominate the industry, which is great for individual entrepreneurs. Many laundromats open early in the morning and close late at night to accommodate customers’ schedules, though some are open 24 hours a day.
While starting a laundromat requires significant initial funding, mainly to purchase washers and dryers, laundromats offer steady year-round income that doesn’t fluctuate much with the seasons, holidays, or other factors that affect other types of businesses. This type of business requires only minimal inventory management of dispensable laundry detergent and softener, making it an appealing option to entrepreneurs looking for a non-retail business.
One of the major perks of owning a laundromat is that the business is flexible. Because customers do their own laundry, training employees is a fairly simple process. Once the laundromat is up and running, owners have scheduling flexibility and can even manage their laundromats and other business pursuits.
According to IBIS World, laundromats in the United States brought in total revenue of $5 billion in 2018. As of 2018, there were 22,260 laundromats in operation that employed 50,825 staff. Martin Ray Laundry Systems, Inc. states that the value of coin laundromats ranges from $50,000 to over $1 million. These laundromats also generate between $15,000 and $300,000 in cash flow every year.
As disposable income has increased for many Americans, some Americans have purchased their own in-home laundry machines or have opted to use drop-off and pickup laundry services, creating competition (or opportunities) for laundromats.
Digital payment systems are revolutionizing the laundry industry. These digital systems offer more flexible pricing options and a more automated system, which means minimal oversight is required with these new options. With less staff needed to monitor the machines, the excess money can go toward other items like televisions, Wi-Fi, and other amenities that help draw in customers or profits for the owner.
Most laundromats target adults who do not have washers and dryers in their homes or apartments. In some cases, a laundromat’s target audience may be college students.
The laundromat’s location will partially determine its target audience. According to Martin Ray Laundromat Systems, Inc., 87% of a laundromat’s customers live within a mile of the business, and over 60% of the customers at an average laundromat are women. Laundromat customers tend to have lower incomes, with their average annual income being $28,000.
Checklist for Starting a Laundromat
If you’re thinking about starting a laundromat business, it’s important to do your research first. Here is a checklist to help you get started.
Step 1: Write a Business plan
After coming up with an idea, the next step in starting a laundromat should be to write a business plan. Not only will a bank require you to have one, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.
Related: How to write a business plan
Step 2: Form a Business Entity
A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
When deciding on which business entity is best for a laundromat, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is that the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: Guide to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
IncAuthority - $0 plus state fees & free registered agent the first year!
ZenBusiness - $49 plus state fees & free registered agent for 1 year!
Step 3: Name the Business
Finding the perfect name for a business can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.
Step 4: Select your Location
Laundromats provide a service that many adults need, but it’s important to strategically locate a laundromat in an area where people do not have washers and dryers of their own. Finding a town with many apartments in a lower-income area is one good strategy, but existing laundromats can provide competition. Creating a new laundromat with a bright, airy, comfortable environment complete with televisions, free Wi-Fi, and other appealing amenities can help attract and build business.
A clean and brightly lit laundromat is an important aspect for someone deciding to use a laundromat long-term. Ensure that your attendants are well trained and accountable for keeping the facility clean.
Laundromats are usually best located close to densely populated areas, with higher numbers of renters. Additionally, locations close to college students are typically strong for laundromat usage.
The cost of rent for a laundromat will vary according to its location, modifications that need to be made to the building, and the size of the space. Instead of leasing a space, some laundromat owners opt to purchase land and build a facility tailored to their business’ needs, though this can be a larger upfront expense.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
The types of business licenses, permits, and registrations that will be required to start and operate a laundromat will vary within different towns, cities, and states. Depending on the location, a health department license or water pollution control permit may be needed.
In addition to any laundromat-specific licensing, there may be some general registrations needed, such as a business license, sales tax permit, Employer Identification Number (EIN), Occupancy Permit, among others.
Step 6: Find Financing
Coming up with a good business idea and having the skills to run it are one thing, but getting laundry financing is another.
The cost to start a new laundromat can be quite high. Banks will generally want to see the borrower have good credit and be able to personally invest 15-25% towards the total start-up costs. A loan guarantee from the Small Business Administration (SBA) will often lower the investment, though this comes with higher fees.
Step 7: Open a Business Bank Account
Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
Step 8: Get your Marketing Ready
When starting up a laundromat, effective marketing is important to draw in customers and establish the business. Marketing an existing laundromat can help to expand a customer base and increase profits.
Laundromats often use direct mailers, print advertising, online ads, radio ads, social media platforms like Facebook and Twitter, online business listings like Google Local, Yelp, and others, and even posting flyers at popular local areas, within nearby apartment complexes, and in other spaces where the business’ target market spends time.
To encourage repeat business from existing customers, consider implementing a loyalty program.
Step 9: Get Business Insurance
There are several types of insurance to consider when starting a laundromat. A few of these include:
– General liability insurance helps to cover expenses like medical bills or legal bills if a customer is ever injured in the laundromat. Both falls and burns are possible because of the presence of water and hot dryers in laundromats, so a comprehensive general liability insurance policy offers business owners needed protection.
– Commercial property insurance covers a laundromat’s lost or damaged equipment and/or building if a fire, storm, or other event damages the property.
– Worker’s comp insurance is required for any laundromat that hires staff. It covers expenses such as medical bills or an employee’s lost wages if that employee is veer injured while working.
The cost to insure a laundromat will vary depending on the value of a laundromat’s equipment, the number of people employed by the business, coverage limits, deductible sizes, and more. To find the best insurance option for a laundromat, request quotes from multiple companies and carefully compare them.
Step 10: Hire Employees
Depending on the size and hours of a laundromat, only one or two employees may be needed. According to PayScale, laundromat attendants earn an average of $9.59 per hour. Hiring employees brings about additional expenses, including paid time off, health insurance contributions, and workman’s compensation insurance.
In addition to attendants, if you don’t have sufficient experience in fixing washers and dryers, either consider finding hiring someone with an appliance repair background or hiring a local repair company to fix machines when they go down.
Related: Hiring your first employee
Step 11: Set up an Accounting System
Setting up an accounting system for your laundromat is critical to the long-term success of your business.
Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.
The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:
- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.
Find bookkeepers in your local area or use a service like 800Accountant.
How much does it cost to start a laundromat?
Laundromats provide on-demand washing and drying services, so they rely heavily on having enough washers and dryers to accommodate their customers. Because this machinery is expensive, starting a laundromat requires a significant initial investment. Aside from this machinery, though, laundromats require relatively minimal additional supplies.
Average costs to start a laundromat can easily range from $200,000 to $500,000. The largest expense for a new laundromat is commercial laundry equipment like the washers and dryers. Additionally, there will be other costs like coin machines, signs, trash cans, vending machines, TVs, security cameras, tables, laundry carts, and more. If the facility isn’t already set-up, a new owner will also spend money on electrical, plumbing, and the water heating system.
How much can a laundromat owner make?
Owning a laundry business can be a profitable venture. According to Martin Ray Laundry Systems, Inc., laundromats generate approximately $5 billion in annual gross revenue, and they produce between $15,000 and $300,000 in cash flow each year. Investing in a laundromat results in an average 20% to 35% return on investment, and 63% of laundromat investors consider their investment to be a full-time job.
Besides offering machines for customers to use, many laundromats also offer dry-cleaning, fold services, and full-service laundry. While the cost of equipment to start dry cleaning is quite high, many laundromats collect a percentage of the sale by simply acting as a drop-off point where a local dry cleaner picks the items up, dry cleans the clothing, and returns it to the laundromat for the customer to pick up. Full-service laundry services are becoming more popular as time-strapped customers will gladly pay someone else to do the laundry for them.
Additional profits can also be made by selling snacks, soap, dryer sheets, and other supplies.
What skills are needed to run a laundromat?
You don’t need a business degree to start a laundromat, but the following skills and experiences will be beneficial in helping you to get started.
Experience with appliances. Whether purchasing or troubleshooting a washer or dryer, some experience with appliances is valuable in owning a laundromat. Laundromat owners call in technicians to fix major issues, but some knowledge of how appliances work and how to fix minor problems and perform routine maintenance can help to save money over the costs of hiring a professional.
Problem-solving skills. Like any business, problems will arise in a laundromat, requiring an owner to have strong problem-solving skills and creativity. Whether it’s working with customers to fix a finicky machine or finding the best technician around who can get to the laundromat quickly, being able to improvise and come up with solutions to problems is a must-have skill.
Customer service experience. Industry reports state that 90% of a laundromat’s customers become returning customers, so providing quality customer service is particularly important in the laundromat industry. When a laundromat owner understands how to listen to customer concerns and take steps to actively address those concerns so that the customer feels heard, it can result in a repeat customer who comes back every week to do laundry at that laundromat.
Marketing skills. Marketing skills will be important, especially when the laundromat first opens, and the owner needs to establish a customer base. While a professional marketer can always help, you can save money if you can do some marketing basics yourself.
Business experience. Starting and running a laundromat does require some business experience or knowledge. Every laundromat owner needs to manage supplies and inventory, decide on appropriate pricing, track a budget and income, and more. Many of these skills can be learned through business courses or through the help of a mentor.
Are there grants to start a laundromat?
It’s extremely rare to find a grant to start a laundromat. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.
What is the NAICS code for a laundromat?
The NAICS code for a laundromat is 812310.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?
Coin Laundry Association