Getting Started: For Investors
Below is a look at topics that will be important to you as you research the laundry industry. Select the links below to go to a specific section, or just scroll down to read the article in its entiretly.
Selecting a location is one of the most important aspects of going into business. Many distributors and laundry brokers can assist with this step. However, it is good to know the basics of what to look for in a location, such as:
- Utilities. A location should have the capability to provide all the necessary utilities, such as water, sewer, gas and electricity. Be aware that there may be initial water and sewer hook-up fees, which are also called impact fees. They could cost several thousands of dollars for an entire store and should be carefully evaluated.
- Visibility. Another consideration when selecting the location is a good, well-lit building that is not too far from the street, preferably at or above road grade level. Good visibility from the outside through large windows is an important customer safety factor as well.
- Accessibility. Avoid a location that is in a highly congested area where it may be difficult to get into and out of the parking lot. Anything that is a vision hindrance, such as shrubbery or another building that blocks the view of the store, should be avoided. Also, neighboring businesses that may not be compatible should be avoided.
- Free Standing or Cluster. Decide whether the store should be free standing or in a cluster (such as in a shopping center). There are advantages and disadvantages to both. Free-standing buildings offer more choice in layout, but strip center laundries have the advantage of late-night activity and ample parking. There are a lot of benefits for a potential store owner in a strip center, primarily a long-term lease, which is the security most landlords are seeking.
Designing for Success
Before breaking ground for a new store, signing a lease or gutting an old store “for extensive remodeling,” thoroughly analyze the interior area. Analyze it as to its business potential for the maximum number of pieces of equipment that can fit into the building and still provide the number of turns per day per unit needed to provide the desired return on investment.
Any store must be designed for maximum profit per square foot of floor space. Once established, provide those customer convenience benefits that complement the layout and equipment configuration. Consider the following:
- Doors. This first principle has to do with getting people into the store – the entryway. If customer convenience is paramount, consider installing automatic doors. Customers who are carrying bundles of dirty laundry into the store will appreciate automatic sliding doors. Other operators who have installed automatic doors report that they receive more compliments for this convenience than for anything else.
- Immediate Observation Area. Inside each entryway, allow approximately an 8 ft. by 8 ft. (square) of space before a customer encounters the first piece of equipment. This “breathing space” provides customers with the opportunity to become oriented upon entering the store. It also gives them a chance to stop, look and decide which direction they are going to take without bumping into someone else who is trying to do the same thing. It allows them an opportunity to pause to greet or say goodbye to friends on the way in or out of the store without blocking the door itself.
- Aisle Ways. Ensure that there are no aisles in the store that are narrower than 5-1/2 feet. Be equally cautious not to make aisles too wide because that will be a waste of valuable floor space. In observing patrons, one can almost see aggravation levels rise if two approaching customers who are pushing carts in opposite directions are unable to pass by each other unhindered. Designing 5-1/2 foot aisles should avoid those unpleasant head-on collisions.
- Workflow. Try to establish a smooth workflow. This is probably the most important guideline of all — smooth workflow from washers to dryers to folding tables. One good way to accomplish this is by using multiple washer islands installed perpendicular to the dryer line. According to surveys taken over the years, 50 percent of customers would rather push dry clothes in a cart the shortest distances; 20 percent would prefer to cart wet clothes the shortest distance; and 30 percent don’t care one way or the other. If these percentages hold true for a particular location, it would appear that folding tables should be located closer to the dryers than to the washers. In planning for table space, a good rule-of-thumb would be about 15 square feet of table per three dryers.
- Large Capacity Washers. Locate large capacity machines as close to the front of the store as possible. In fact, try to position these big machines very close to the doors.
- Finishing Touches. Finishing touches can be defined as those little things that provide a store with the personality, uniqueness and atmosphere all its own. One little touch is to use a lighting consultant. Most local electric companies employ an individual with this type of expertise. They engineer the building lighting for proper human comfort levels in relation to the task that is to be performed. This is important because too little or too much light in the wrong place can become very discomforting to customers. Subconsciously they will appreciate the fact that they have the proper type and amount of lighting. The lighting will also have a big effect on how clean their clothes appear when they are washed and dried in the store.
Also, if space is available, try to provide a specific area that can comfortably accommodate soap products and snack-type vending equipment (e.g., candy, coffee, soda, popcorn machines). Vending machines are a profitable as well as a desirable convenience that customers seek.
Remember to provide the customers with plenty of laundry carts. About half of the carts should have hanging racks on them. The number of carts will depend on customer usage, but a minimum of one per four to five washers would be advisable.
When decorating, don’t be afraid to use bright colors, specific themes or even wild décor. Generally, customers will like it and the creative decorating will provide the laundry with its own personal identity. Once established in the customer’s mind, this store image or identity can be used to advantage in advertising and promotional endeavors.
- If possible, for safety, design the laundry to allow for unobstructed visibility from front to back.
- Install ceramic or other type of slip-resistant tile floor that will help minimize slips and falls, will look better and last longer.
- Work with an expert to help design the store — find a CLA distributor member.
Who Should Design the Space?
- Is the person knowledgeable and dedicated to the industry? A fully knowledgeable design person will be an expert on local or national trends in laundry design.
- Is the person forthright and does he or she have a good reputation? When selecting someone to help with space management, be sure that person will be direct about what is needed. Make sure the information is valid and that he/she is not saying something just to sell more equipment.
You should install the maximum number of machines to provide the number of turns per day needed for the desired return on investment. Once the equipment layout is determined, analyze how to provide convenience for the customer, which complements the equipment layout. Designing for maximum space utilization involves the size requirements and mix of the equipment.
From this data, determine the number of toploaders, frontloaders, large capacity washers, dryers, extractors, bill and coin changers, soap and bag machines, carts, folding tables, water heaters and storage tanks needed. These are the significant items that will occupy the space in the store. Where they go will depend upon the design of the store itself. Of course, the space design will depend upon the design of the building and placement of the walls, window locations, door locations, bathroom plumbing, existing plumbing, gas and electrical, height of ceilings, and room shapes and sizes.
Now that parts of the puzzle are complete, try to put them all together. The number of items desired, the actual placement of those items and the spacing between them will comprise the utilization of space.
Development, innovation and changes in equipment can provide for new approaches to store design and space relationships. Here are some recent advances in store layout:
- For years, the size of laundries has been referred to in amount of square feet or number of washers and dryers, but another common size measurement is the number of pounds the store is capable of washing per day or per hour. Of course, large capacity washers allow more volume to be washed in less space. Likewise, stacked dryers provide more revenue in less space.
- The greatest bottlenecks in stores occur near the dryers. Most stores have enough washers. Because drying takes longer than washing, a bottleneck (or backup), is often created by the dryers. If adding washers, especially large capacity washers, consider expanding the dryer capacity of the store as well.
- As the flow in aisles is important for customer convenience, so is the overall workflow that is created by the store’s layout. Be sure there is a good flow from washers to dryers to folding tables. Newer folding tables take advantage of space utilization techniques by providing shelves, which can increase folding capacity by 30–40 percent.
Each store will have different layout and design requirements that are based on equipment mix, the services provided and the customer makeup. The actual size and shape of the store should be determined only after all the data has been collected that helps determine the pounds of wash the market demands.
Fully analyze the situation before going to the drawing board. When ready, make full use of the space by employing the techniques discussed. Given the choices in a free market, cleaner, safer and better-maintained stores, as well as a good layout and design can make the difference between a customer choosing your store over a competitor’s store.
Choosing a distributor is one of the most important decisions a laundry owner will make. Over the years, the distributor has evolved into an integral part of the success of the manufacturer (by selling equipment) and the store owner (by providing knowledge, support, financing, service, design, demographics, marketing and equipment).
Laundry equipment is not a product that can be taken out of a box, plugged in and used. The equipment needs to be taken off a truck (some products weigh thousands of pounds), rigged into the store, set in place, bolted down and hooked up correctly. A professional is required to do this properly. Most equipment failures and problems stem from improper installation. Machines improperly installed typically have premature bearing failures, vibration problems and drain problems. The money saved by buying direct is typically surpassed by costs in repairs and perhaps premature replacement.
Before purchasing a product, here are a few services the distributor should provide:
- Examine the store’s specific needs and recommend the right products to achieve the owner’s goals.
- Check on new construction regularly to ensure that all stages of the build-out go as planned.
- Check installation parameters. Will the equipment fit through the door? Is the right flooring in place to support the equipment? Does the store have the right utilities? Does the equipment fit into the space properly?
- Check delivery times from the manufacturer.
- Recommend the right manufacturer for the store’s needs.
- Answer all questions about the products being purchased, including why a specific product is recommended and how it compares with the competition.
Another reason to consult a professional is to gain information from his/her experiences. This experience with products makes the distributor’s professional opinion a valuable component of the decision-making process. Most people have made a purchase they later regretted. Another professional’s opinion can help mitigate that feeling of buyer’s remorse. Once the order is placed with the distributor, the work really begins.
Here are some of the distributor’s responsibilities:
- Ordering the proper equipment with the right voltage and specifications from the manufacturer.
- Coordinating the sale with a finance company, if financing is desired.
- Tracking the order with the manufacturer.
- Accepting the product at the warehouse or the job site; meeting the truck and taking the product off the truck; rigging it into the store and setting it in place.
- If contracted, bringing the proper utilities to the machine; bolting it down, if necessary, and checking the start up.
- Training owners on proper use of the product and any preventative maintenance procedures they might have to perform; providing a maintenance schedule.
- Providing service when needed, including warranty service as negotiated when the product was purchased.
- Providing warranty parts through the manufacturer.
What to Look for in a Distributor
When selecting a new supplier, use prudence, especially if the store owner is new to the business. Check references with the Better Business Bureau, banks, credit bureaus or Dunn & Bradstreet. Distributors who are members of the Coin Laundry Association (CLA) are among the most reputable and best qualified to provide assistance.
When selecting a distributor, look for the following qualities found in many credible businesses:
- Offers honesty, integrity and credibility in addition to prompt and professional service
- Attends industry activities to expand knowledge and skills
- Seeks ways to deliver high-quality service to customers, including the utilization of experienced installation crews
- Offers reasonable financial assistance programs
- Helps make decisions that are good for the business
- Treats owner’s investment as if it were his/her own
- Provides regular service training programs on equipment
- Does not speak negatively about competitors or their products
- Maintains an ample supply of parts with rapid delivery
- Furnishes floor plans, equipment costs, pro formas and holds in-person meetings with construction people as part of the full service
- Has superior knowledge of the industry and the products they represent
- Possesses demographic knowledge and interpretive capabilities
Local distributors are a valuable link to the industry. They attend local and national trade shows to learn more about the industry. They network with other distributors and pass along the information to their customers. They participate in trade associations, like the Coin Laundry Association, to continue their education and to give back to the industry.
The relationship with the distributor should be a working partnership for the future. Choosing the right distributor can impact the store’s financial future; determine how much that investment is worth. No matter what the purchase, price is only one part of value. Research distributors to find the one who illustrates the “value” in what he/she offers. Not all distributors are of the same quality. Interview them all in the trading area to find one who fits the descriptions above — and it becomes evident that price is not everything. Developing a relationship with the local distributor should result in a long-term collaboration that will enable the store to be even more successful.
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Financing for a brand-new laundry is considered by banks as venture capital, which is a market in which they are not typically involved. Being regulated by the government, most banks are precluded from using bank funds for start-up businesses‚ unless they have 100 percent collateral outside of that business.
For owners who are building an additional store, such as a second or third laundry, this loan would no longer be considered a start-up. It would often be referred to as an expansion and banks have more leeway in this case. To facilitate the sale of laundries for their customers, many manufacturers offer in-house finance programs. Just as automobile dealers do, the manufacturers of laundry equipment provide financing as a means to sell equipment. Having control of their own funds allows this “captive” finance company to look beyond the start-up nature of the financing and be able to finance qualified individuals for the right location. There are also several independent finance companies that specialize in the laundry business and can provide financing for start-up businesses.
Financing a new laundry can be in the form of traditional financing or equipment leasing. As there is a substantial amount of equipment in a laundry, it lends itself to leasing companies that can get around the nature of a start-up business by using the equipment as collateral. However, be wary of traditional leasing, similar to leasing a car when a large amount of money is due at the end of the lease to purchase the car. In some cases, it is left open for the leasing company to determine the amount. This is too risky. Consider a “finance lease” where the purchase option at the end of the lease is minimal or “one dollar” and it is in writing upfront.
Financing for start-up laundries (or any other business) is typically more expensive than traditional bank financing. As secondary sources of money, leasing companies and captive finance companies purchase their money from banks and other sources and turn around and lend it to consumers at a higher rate. Because of the risky nature of start-up businesses, they also have to build in a “reserve” for possible bad debts.
The monthly payment is the key factor in the cash flow of any business. In the laundry business, it is paramount. A good location can be successful or fail over two items: rent (or mortgage) and the note payment. The vend price charged is pretty much determined by the local market conditions (or what the market will bear) and the expenses of a laundry are mostly fixed; the only variables become the rent and the note. When examining a new laundry location, always put the equipment mix at the real vend prices, and the actual expenses and rent into a spreadsheet including the note payment.
Then there is the subject of fixed-rate financing vs. floating. As in home mortgages, floating rates are always lower upfront, but can rise with prime rate fluctuations. Most accountants will arrange for borrowing short term at floating, but long term at fixed; however, this is your choice. Fixed-rate financing is a guaranteed monthly payment for the entire length of the loan, and with this type of financing there can be no surprises no matter what happens to the economy. Most lenders prefer floating as it protects them, not the consumer. Banks typically borrow their money floating, so they charge more for fixed as they do not want to take a gamble. Ask any lender what their floating and fixed rates are; the fixed will always be higher.
Assuming that the location qualifies with the lender, the owner will need to provide information and be willing to invest money of his or her own. Typically, the bank or lending institution would like to see an investment of 20 to 30 percent of the entire project. The project will include equipment, installation and leasehold improvements. Plus, the owner should have additional funds for start-up costs such as utility deposits, initial advertising campaigns and a reserve, which will carry the owner until the break-even point is reached. That means the bank or lending institution is investing up to 80 percent of the cost of the business and has more money invested than the owner does.
To process an application, the lending source will usually need the following items:
- Credit application signed to authorize a credit investigation
- Bank verification forms as proof of funds to be invested
- Personal financial statement
- Last two years personal tax returns
- Details of anything that might show up on the credit report
- Location analysis including a demographic study
- Cash flow forecast or pro forma
- Signed sales agreement
- Any business financial statements for full or part ownership
The bank will need all of the above, plus other information that is required by their bank policy. Then they will need some time to verify the information and go to their credit committee. Typically, this could take five to seven business days, but varies from lender to lender. What usually takes the most time is to get back the bank verification forms from the bank. To speed up the process, take the forms into the bank and wait while the loan officer fills them out.
For financing of a replacement business, the process is much easier and faster. More lenders will finance expansions or replacement equipment at lower rates. Some do not understand the nature of a cash-based business‚ and will require a business financial statement and proof of cash flow that will be adequate to repay the loan.
Shopping for financing is the same as shopping for a distributor. The owner must feel comfortable enough with the lender so that they will enjoy a long-term relationship. Over the course of five to seven years, many things can happen. Will the lender be a good partner or “fit” for the business? Does the lender understand the long-term goals and can the lender grow with the business? Does the lender understand the business and can it be an asset to the future plans? Prospective owners should interview the lender as the lender interviews them.