When investing in a laundry business, there are two methods. One is preferred, but the other is far more common. If you are considering entering into a new industry, like most now entering the laundry industry, you want to have a good understanding of both the opportunity and the pitfalls of the business before investing into it. Keep in mind that while the rewards of doing it right, as well as the costs of the mistakes are high; most are in the 10's of thousands and often in 6 figures.
The laundry business, for those who do know it well, understand that when the laundry investment-model is set up correctly, the benefits are far better than what you may hear or ever realize. The real rewards are for those who understand the difference between the operating model and the business investment model. Here is where you either enter the world as a, Laundry Investor or make the decision for the more common path, a Laundry Operator. Understandably this revelation may cause you to be confused but, it is a fact that not all laundries circumstances will allow for the greater opportunity. This discovery is best worked out when doing diligence.
This is not to say that the laundry will not perform as expected. If your diligence is well done, the laundry should perform and you should be able to expect a cash flow or Return of 17% - 22% (base +/- add backs) of your cash investment. We are rather discussing its sustainability and what to do with it from here; how to both increase the cash flow proportionate and increase long term value and expand the investment. As an investor, you want everything to line up with your investment model so that you can take advantage of larger opportunities and to expand for the larger investment.
The difference between an operator and an investor, is established by design within a model.
The varying results of these two models are most apparent in the end game. One laundry, I will use as an example, was developed by a client of mine back in the 80s. The laundry was sold at age 11 to someone that did not understand the business, for a high-normal evaluation level. It was a very good laundry. The family that purchased and operated the laundry did everything the same way as the original owner except everything was now older and also required more maintenance, which was a growing issue. In the next couple years all went along with little change in revenues but soon later, everything started falling apart. The rent went up and utilities took an unusual jump, all adding to the owner’s woes. The owner was afraid to raise prices because competitors were as or lower than the family’s laundry. They attempted promotions but when the promotion ended, the business was left at the same level as before. Eventually, customers started going to other laundries, revenues started a slow decline and the owners were just not prepared.
This laundry was bought back by the original owner after about 4 years, for a very low price. The laundry investor then rebranded the laundry and replaced the needed equipment. The laundry model was also upgraded as was the operating model and the business grew. It grew beyond and soon to exceed the original numbers of when the laundry was sold only 5 or so years earlier. To further the story, this laundry was sold again after operating for another 6-7 years and boy, with old equipment, it is way past time to be retooled and rebranded.
There is a lot to understand about any business. Unfortunately for many that enter the laundry business it is just too easy to get by for quite some time with very little understanding of the business. The difference between a Laundry Operator and a Laundry Investor lies within ones decision to create an investment model.
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