Investing in a laundromat can be an appealing option if you’re interested in owning a recession-proof business. Laundromat services are always in demand, and owning a laundromat offers small business owners the potential for steady cash flow, low inventory costs, and relatively minor day-to-day demands. Owning a laundromat can be a wise investment whether you’re a brand-new entrepreneur just starting out or a seasoned veteran looking for smart ways to continue building your portfolio. However, just like any major financial decision, if you’re considering purchasing a laundromat, you need to do a little research first to ensure you’re making a sound investment. Conducting thorough due diligence can help you avoid common pitfalls and set the stage for a profitable venture. Use a laundromat due diligence checklist to get started.
Due Diligence: Why It Matters
Due diligence is the investigative process of examining the details of any potential investment, ensuring that all aspects of the business align with your expectations and investment criteria.
In the context of laundromats, performing due diligence means thoroughly investigating and evaluating the laundromat business from operational, financial, legal, and technological perspectives before purchasing. The importance of performing due diligence before purchasing or opening a laundromat cannot be overstated. Detailed, accurate due diligence ensures you have all the information you need to make a correct valuation and a smart investment. It can also pinpoint opportunities to improve the business post-acquisition.
What questions do you need answers to before purchasing a laundromat business? The items on the laundromat due diligence checklist below cover the essentials.
Laundromat Due Diligence Checklist
Location, Location, Location
The physical location of a laundromat is one of the most important factors influencing its potential success or failure. A laundromat located near apartment buildings, college campuses, or mobile home parks will likely find a larger customer base than a laundromat situated primarily near single-family homes or newer condos and townhomes with in-unit washers and dryers.
It isn’t enough to be in the right area for your potential customers: if your laundromat is in a location that’s hard to find, inconvenient to access, or difficult to get to, your business will struggle to find or keep customers. Is the building itself in good condition? Is the area safe? Make sure you have answers to these questions and a thorough understanding of the neighborhood, demographics, and more as part of your due diligence. How can you get this information? Tools and resources like city planning documents and market analysis reports can offer valuable insights. Visiting the area and speaking to residents and current customers is wise as well.
Operational and Financial Due Diligence
Your due diligence should include reviewing historical financial documents. Examine profit and loss statements, payroll, repairs and maintenance, worker’s comp, taxes, office and cleaning supplies, security system costs, and utility bills for at least the past three years to understand the business’s revenue streams and operating costs.
If the laundromat is leased, review the lease terms carefully. Look for information like lease transferability, lease duration, renewal options, and any restrictions that could impact operations.
Legal and Regulatory Due Diligence
Compliance with local, state, and federal regulations is non-negotiable for laundromats. Learn about all relevant environmental regulations, health and safety standards, and business licensing requirements for your business. You should also ensure no outstanding legal issues or disputes involving the current business owner could affect the transaction or future operations.
Evaluate the Equipment
The condition and age of the laundry equipment are major factors in the laundromat’s value and will directly affect operational efficiency and repair costs. Make sure you have a good understanding of the answers to questions like the following:
- Is the equipment in good shape?
- Has the equipment been regularly maintained?
- Does the equipment meet the needs of the existing customers?
- How much effective life is left in the equipment, and will there be expensive maintenance or repairs you’ll soon be responsible for?
- What condition are the water pipes in?
- Is the electrical system up to code?
Replacing or updating equipment can be expensive, so you’ll want this information on hand in order to negotiate.
Are you planning to buy a laundromat? For a reliable distributor, check out Laundry Solutions Company, a full-service provider of premium vended, on-premises, and multi-housing commercial laundry equipment. Our leasing program provides no mileage fees, no service fees, and no parts fees. You can use high-quality Speed Queen equipment while enjoying a flexible lease and predictable payments. To learn more about our products and services, please call us at 800-383-9274 or contact us online. We look forward to hearing from you!